By default, stylesheets are used as external files from your templates/styles directory. In your switches area, you have an option to convert these to inline styles instead. This will not affect how you edit the styles -- you'll still be editing the files in your templates/styles directory.

The advantage you gain from this conversion is that you'll be able to make use of template variables, conditionals, and all the other template features in your style just the same as with templates. With the regular external styles you cannot do so, they are not dynamic. The disadvantages of the conversion are that it slows down the loading of your pages slightly and it's perhaps not quite as elegant when you view your source.