When doing a local clone with a plain hg clone A B mercurial first tries to create hardlinks for files inside the .hg directory. This speeds up cloning and saves harddisk space by using the same physical file for two or more directory entries.
Both Linux and Windows NTFS file systems support hardlinks. For filesystems that don't support hardlinks (e.g. Windows FAT), mercurial falls back to copying all files instead of hardlinking them.
In situations where a hardlinked clone may not be ideal, users can use hg clone --pull, which will use the pull protocol for cloning and create a fully independent clone.
Cloning over http/https or ssh from a remote server implicitly implies --pull.
Examples
$ hg clone http://selenic.com/repo/hg hgcopy requesting all changes adding changesets adding manifests adding file changes added 12613 changesets with 24932 changes to 1936 files updating to branch default 848 files updated, 0 files merged, 0 files removed, 0 files unresolved
This was clone over http from a remote server. The resulting clone (hgcopy) thus has no hardlinks.
$ hg clone --pull hgcopy hgcopy2 requesting all changes adding changesets adding manifests adding file changes added 12613 changesets with 24932 changes to 1936 files updating to branch default 848 files updated, 0 files merged, 0 files removed, ..
This was a clone with explicit --pull. The resulting clone (hgcopy2) thus has no hardlinks and is completely independent from hgcopy.
If mercurial prints "adding changesets" then the resulting clone will have no hardlinks.
$ hg clone --debug -U hgcopy2 hgcopy3 linked 1956 files
This was a clone which uses hardlinks. The files in hgcopy2 and hgcopy3 (inside the .hg dir) are hardlinked. Mercurial versions 1.6 and later print the number of files that were hardlinked if --debug is specified.
$ hg clone --debug -U hgcopy2 x:\hgcopy4 copied 1956 files
This was a clone where mercurial first tried doing hardlinks, but didn't succeed. For example the filesystem may not support hardlinks or the source and the destination are not on the same volume. In this case mercurial falls back to copying the files.