- Data URLs embed data within the URI instead of being a link
- Data URLs can be used to embed images into a web page
- Data URLs can be used for images in markdown
Background
Links in Markdown
URLs can be used in markdown as a hyper-link to another location (another page, or an anchor in the current page, or both.) These links in markdown come in two varieties: "conventional" and reference-style. Conventional links have the format [text](url).
Reference-style links have a two-part format. The first is the reference declaration which consists of a name and the URL. For example:
[twitter]: https://twitter.com/peterritchie
Typically the reference declarations appear at the end of the markdown file.
That second-part of the format is slightly different than a conventional link: [Visible Text][reference-name] (notice that both parts are enclosed in square brackets)
For example: [Me@Twitter][twitter]. Which would result in Me@Twitter.
That reference can be used any number of times within markdown by referencing the reference name.
Images in Markdown
An image in markdown is a special kind of link; it follows the same format as other links except that it starts with an exclamation mark (!) and has an optional title-text enclosed in quotes. For example . Since the image is what is visible, the title text portion of the link is text shown when hovering over the image and the alternative text is used by accessibility features.
Data URLs
There exists the ability to encode content within a URL (so the URL is actually the "response" in the conventional URI request scenario). Data URLs (Formally known as Data URIs) use the data: URI schema followed by an optional media type, an optional base64 extension (;base64) followed by data (if the base64 extension is used the data is binary and is base-64 encoded).
For example, with binary data for a red dot png a data URL may look like this:
data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAUAAAAFCAYAAACNbyblAAAAHElEQVQI12P4//8/w38GIAXDIBKE0DHxgljNBAAO9TXL0Y4OHwAAAABJRU5ErkJggg==
Images, Data Urls, and Reference-Style Markdown Links
Data URLs may be used in markdown image links. With image markdown format and a data URL:
... and result in: 
...or with title text:
... and result in:
Or, with a reference-style image link:
![a red dot][red-dot]
[red-dot]: data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAUAAAAFCAYAAACNbyblAAAAHElEQVQI12P4//8/w38GIAXDIBKE0DHxgljNBAAO9TXL0Y4OHwAAAABJRU5ErkJggg==
... and result in:
Data URLs are a handy way to reduce the number of files involved in a page. Like any feature, that can get ridiculous so the value comes when working with small chunks of data (like a red dot image.)