The difference between these two settings (found under File-Manage Links) is the following:
Relative: If you move the Revit file you will need to move the dwg link into the same folder. If you don't do this the link will be broken, although it may still display the file in a static state.
Absolute: You can move the Revit file without moving the linked dwg. The only issue with this is if you were to move it to a location that can't access the path, the link will be broken.