I want to import some artwork made in AI, and I might need to make changes to the size of it and I might make changes to it in the future in AI. After importing it into PS, if I convert it into a Smart Object:
1. Does this enable me to scale it up and down in AI without any quality loss?
2. If I make a change to the artwork in AI will it auto update in PS?
3. How do you embed the AI artwork so I do not need to keep the AI file along with the PSD?
Place Illustrator file onto Photoshop as Smart Object Layers. They will be vector Smart objects. Not actually Vectors in Photshop but Transforming these Smart Objects Layer well resize well. The resize like you cam resize Files like EPS, Svg, PDF where you can set the size layer you want Photoshoo open. Photoshop will render a pixels layer that size suing vector graphects to render the pixels required for a layer the size you want. There will not actually be any vector path or vector mask in Photoshop . Just a pixel layer. If you have AI installed If you open the smart Object layer in Photoshop The Work File will most likely opey in AI not Photoshop,
Use File > Place Embedded and file will be embedded in PSD document so you can delete the original file. Read the rest in JJMac reply.