It will extract out the geometry data and use that to create the separate OBJ file. You'll be given a standard file/save dialog so you can save it where you like. The editor will then add in the selected path. The data in the prop or figure file should be identical to your original OBJ.

You can always over write or edit that OBJ file once extracted. And that's pretty much the point of having remote geometry, it is much easier to edit than if it were embedded.