Choose a preference to specify where the settings are stored. The XMP files are useful if you plan to move or store the image files and want to retain the camera raw settings. You can use the Export Settings command to copy the settings in the Camera Raw database to sidecar XMP files or embed the settings in Digital Negative (DNG) files.
When a camera raw image file is processed with Camera Raw, the image settings are stored in one of two places: the Camera Raw database file or a sidecar XMP file. When a DNG file is processed in Camera Raw, the settings are stored in the DNG file itself, but they can be stored in a sidecar XMP file instead. Settings for TIFF and JPEG files are always stored in the file itself.