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In a nutshell (because I don't have my postscript manual handy), a
postscript file is a collection of instructions for drawing an image -
not a map of light and dark points and their absolute coordinates
(referred to as a bitmap) but a drawing. It's like a programming
language, interpreted by your printer. As such, the commands in the
postscript file are interelated; the way one command is evaluated is
relative to the previous commands.
So what happens if you want to insert one postscript image inside
another? Well, you can't just jam the postscript commands in there,
because that throws off the relationships of the existing postscript
commands.
So there's a special format called "enscapsulated psotscript" that
consists of commands to tell the postscript interpreter that the
following postscript commands are off in a world of their own, and
should not be considered relative to the preceding commands, nor
should affect commands following the encapsulated postscript file.
This is necessary with many packages that convert the file to
postscript to print it. Since the file will be converted to
postscript, any postscript images in the file have to be encapsulated,
or they'll throw everything off.