It adds the file to the project, but does it in the original location, and not in a new location.
You can see this if you exclude the source file from your VS project (but do not delete the file from disk) - the file will then add the original location to your project
eg. if you have the folder FolderA\index.htm and FolderB , and you want to create a link to index.htm in FolderB . Exclude index.htm from your project (but leave it in FolderA on disk), so your project has only two empty folders. Right-click on FolderB and select Add Existing Item , select index.htm from FolderA and click Add as Link . The file will be added to your project, but in FolderA (where it is located on the disk), not within FolderB , where you said to add it.
This is what the VS error looks like to me.
As already mentioned, this is a valid scenario if there are several root websites in the same project, but you want to share resources between them.
source share