What it is:
Hotlinking, also known as inline-linking, refers to bandwidth theft by means of posting or embedding images, video, etc from another server without first rehosting it.
Why it's bad:
Don't be a dick. - Many hosting companies charge for exceeding a set limit of outgoing bandwidth. This is especially true of basic shared hosting accounts used by blogs, small businesses, and people who went to GoDaddy to see Danica Patrick naked but ended up buying a website.
It's fucking slow. - Image hosting sites like Imgur have dedicated servers for data distribution. Images load faster = forum loads faster.
Imgur will also compresses images automatically as you upload. Think of the data plans.
Left: uncompressed photo. Right: after upload.
We may not see what you see. - Hotlinking is a large enough problem that many sites now block it , a generic replacement image (or tubgirl) gets displayed to users who haven't visited their site but attempt to leach its content.
Because the OP had visited the site to pull the image, they are not effected, while everyone else sees the placeholder: