Projects allow you to save your work in one convenient linked package. A project typically contains all the views, tables, charts, layouts and scripts that you are using. The next time you want to work on a specific project you simply open it and all the components you need are available. Project files have an .mxd extension.
A project file doesn't contain the actual data that you use in ArcGIS. Instead, a project stores references to the location of these data sources on disk. In this way, the same data can be used in any number of projects without duplication. If you change the location of your data it is essential to change it's reference in ArcGIS. This is usually prompted when a project is opened and the files cannot be found
Also see Project window
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