Yes, a collection, and smart collection is just a link to actual photo.
I'm gussing that if I drag files to a collection from WITHIN BRIDGE, that the collection just has an alias or link to the actual file which resides in another folder. Is there a difference if I copy files from the finder?
To clarify a bit more on Curts post, yes, there is a big difference between using Finder and using a collection. Finder moves or copies the files itself, a collection makes an alias of the file but leaves its original in the same folder.
You can select a bunch of files in Bridge and create a collection. Then you can drag other files to it. But be aware! while the collections contains only aliases and not originals you should only use the 'remove from collection' button at top of the content window. For some unknown and very odd reason using the delete button on the thumbnail removes it not only from the collection but puts also the original in the trash.
If you keep this in mind you can use collections to your own benefit.