Unlike raster image editors, Illustrator does not interpolate raster data. The pixel data in a raster image remains the same, regardless of what one does in terms of scaling the image within Illustrator.
Quick Answer: It is possible to place something like a 300PPI image into an Illustrator document, reduce the image within Illustrator to 1/6th scale. If the image is then output "at size" (x6, i.e. the original image size 100%) the PPI will still be 300PPI upon output.
Longer Answer:
Example (using simple dimensions for clarity):
A 6" x 6" image @ 300ppi has a total pixel count of 3,240,000 pixels (3.24 megapixels).
6" * 300PPI = 1,800 (pixel dimension). So, 1,800px * 1,800px = 3,240,000px
[ pixel width multiplied by pixel height = total pixels ]
With Illustrator, if this image is reduced, to say 3"x3", the total number of pixels does not change. The effective PPI changes. In other words, Illustrator "condenses" the total number pixels into the new dimensions, meaning the change effectively alters the image PPI. So at 3x3" the image is now 600ppi. An image reduced by 50% will effectively double the image PPI.
In order to figure the effective PPI for a raster image one works backwards....
- √3,240,000 = 1,800 / 3" = 600ppi
(square root of total pixels, divided by dimension, equals effective pixels per inch)
Conversely if the image is enlarged, to say 12"x12", in Illustrator the total number of pixels are stretched to fill the enlarged dimensions, but the PPI remains the same. Again, the effective PPI of the image is changed not the actual pixel data. An image enlarged by 200% will effectively half the PPI.
Working backwards....
- √3,240,000 = 1,800 / 12" = 150ppi
(square root of total pixels, divided by dimension, equals effective pixels per inch)
So, to answer the question :)
...
If you place a 300PPI image into Illustrator, you can reduce/enlarge it as you please, but you won't change the image pixel data.
So, if the image is enlarged too much the overall image quality may suffer due to less PPI upon output. It's best to place the image at the desired output size and resolution, then reduce and never enlarge the image beyond it's original dimensions.
It's possible to watch the Effective PPI of raster images when you are scaling them within Illustrator by using the Document Info Panel (Window > Document Info
then choose "Linked/Embedded Images" from the panel menu, whichever is appropriate)
Here, I've used a 6"x6" @300PPI raster image from Photoshop and linked to it in Illustrator. Note in the panel the Size
remains the same - 1,800px x 1,800px - at all times. However, as I reduce the image, the effective PPI, i.e. Resolution
, changes along with the Dimensions
.

This is using Illustrator CS6, but it's the same info shown in more recent releases
- the panel will merely appear different.
Linking or Embedding doesn't change any of this PPI behavior. Here you can see an embedded image operates in the same manner:

However, Linking/Embedding may alter what's possible while working within Illustrator, i.e. some Illustrator operations only work with embedded raster images.
Reducing/enlarging raster images within Illustrator will not "speed up" operations. Illustrator will always work with the total number of pixels within the image.
Be Aware...
The menu item Effects > Document Raster Effects Settings
has absolutely nothing to do with any linked or embedded raster image. It won't change any of the above described behavior nor alter any raster image pixel data. It has no relation to any linked or embedded raster images.
This menu items refers to "live" effects within Illustrator which auto-generate raster images. Effects such as glows, drop shadows, blurs, etc. all generate embedded raster images "on-the-fly" to create their appearance. It's the resolution of those auto-generated images which the menu item refers.
Reducing the PPI for the Document Raster Effects Settings
can speed up operations within an Illustrator file if you are using such raster effects. Illustrator can auto-generate a 72ppi raster effect faster than it generates a 300ppi raster effect. A "speed trick" for high resolution output is often to work with this setting at 72ppi. Then, before output, increase the setting to 300ppi, wait for everything to redraw, then output.
I'd also point out that where raster images are concerned, this "effective PPI" behavior is identical in both Adobe Illustrator and Adobe InDesign.