So this is like MODE=1 of Tom Hoffman's %FREAD() macro from the year 2000 that I have a copy posted at https://github.com/sasutils/macros/blob/master/fread.sas.

Tom's macro requires that you %UNQOTE() the result if you want to result to RUN instead being inserted into %LET or other statement.

So %embed(C:\project\query1.sql) is the same as %unquote(%fread(C:\project\query1.sql)).