Why does building with runtime packages make the EXE file smaller?

I have a query about the option in Delphi to build with or without runtime packages (Project->Option->Packages).
The executable file size seem to be smaller (389KB) when I checked the box "Build with runtime packages" compared to when I uncheck the box (3,521KB). Why is that the case?

I am having so much trouble building an installation disk for it and can't figure out what files should be included in the installation. I wonder if this might have anything to do with it, but I have tried both options already.