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As developer Anders Borum told me, one of the nice aspects of this integration between Working Copy and external folders is that all the Git housekeeping data (usually stored inside a .git folder) will be kept inside the original app if it’s already there; if it isn’t, however, Working Copy will keep the .git directory for itself, so it doesn’t “confuse” the linked app. Essentially: if you connect an app like Obsidian to Working Copy as a linked repo, don’t worry about any .git data being copied into your Obsidian vault.

Manually Install Obsidian Plugins on iOS and iPadOS via Working Copy and Its New Version Control for Files - Club MacStories($)