Master Pages vs. Application _Layouts Pages
SharePoint 2010 Central Administration/Application Management/Manage web applications/
Select "SharePoint - 80"
"General Settings"--"General Settings"
What/where are Application _Layout pages?
From IIS, the _Layouts virtual directory includes all the Application _Layouts pages, which are used to administer the SharePoint configurations.
Examples to access the Application _Layouts Pages:
http://k2/_layouts/viewlsts.aspx
Master Pages
Copy and Paste v4.master
Insert a HyperLink
Save it
Set it as Default Master Page
Open http://k2/ SharePoint website
The Hyperlink and log are shown.
When setting "Application _Layouts pages reference site master pages" to Yes (default), the Application _Layouts pages will merge with the Masterpage.
It is a good thing that every sharepoint page has the customized logo and hyperlink. But if the masterpage crashes, you cannot open the configuration pages.
When setting "Application _Layouts pages reference site master pages" to No, the Application _Layouts page will not merge with the site master page. As shown below, the Hyperlink and logo are not shown.
Good thing is that if the masterpage is crashed, you can still access the configuration pages.