Whats the advantage of a library project over having an external source folder that you share bewteen projects?
if you have a library project it compiles to a swc rather than swf. if other projects link to the swc (rather than 'raw' .as or .mxml files as in an external source folder) then development is quicker because the library stuff is already compiled rather than being recompiled every time you test/run/publish your main project
You can also define namespaces and design-view specifications in the a manifest file of a library.
Most of the advantage however comes from enterprise level development. It's a lot easier to manage continuous integration with specifically versioned libraries. Of course you can just "say" that code is compatible against revision number in source, but it's more easily enforced through the distribution of compiled libraries.