Difference between AE's - editable Layer Style - merge Layer Style into Footage


1  - editable Layer Style  vs 2 - merge Layer Style into Footage

Layer styles

Photoshop provides a variety of layer styles—such as shadows, glows, and bevels—that change the appearance of a layer. After Effects can preserve these layer styles when importing Photoshop layers. You can also apply layer styles in After Effects and animate their properties.
http://help.adobe.com


The first option is when you still want to make adjustments to the layer — depending on the layer styles of course, but you may want that flexibility.
The second option flattens the image so that it is just like importing a flat bitmap image.
Most often I choose the fist option of retaining layer styles and then pre-compose the image if I want to treat it as though it were flat. That's the best thing to do if a photoshop file has layers that you want to edit or animate.
by Patches 



So example if in :

option 1 you've masked out your illustrations using the pen tool, the mask shapes will appear in AE .





Option 2 will import the cut out shape without the mask outlines, thus a  flat image.




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