In Windows 8.1, OneDrive can give you access to all your files in the cloud, without fully storing them on your device. At least, in theory, your apps and programs should be able to work with these files like they do with any other files. However, problems may happen. For example, when large files are being downloaded by a program, there may be a long delay, with no progress bar reflecting the download. Other programs might not even see your OneDrive files so that they can open them. Fortunately, such problems can be fixed by using a new compatibility setting, introduced in Windows 8.1.
How Windows 8.1 Apps & Desktop Applications Work with Smart Files
As explained here, apps and desktop applications work with Smart Files (files that are available online-only) as if they are normal files stored on your hard disk. In a desktop application, when you open an online-only file from OneDrive, Windows 8.1 first downloads it and then the program is able to use the file. If the file is large, the download process takes a while and you are shown the progress of the download.
When opening Smart Files from modern Windows 8.1 apps, they too download the files before opening them for use. During the download process you see some dots moving clockwise until the download is finished. From then onward you can use that file in the app.
Problems that You May Encounter with Older Programs
As in all things tech, failure is always possible. For example, when large files are being downloaded by a program, there may be a long delay, with no progress bar reflecting the download. Some desktop applications, when you use their File->Open dialogue, might not display OneDrive files that are available online-only. Since OneDrive defaults to offline, a direct look at the file system won't see files. Therefore, you cannot select those files and work with them. Personally, I did not encounter such issues but, when using older programs they may happen. Fortunately, Microsoft has provided a new compatibility setting that may help.
Enable this program to work with OneDrive files
To solve this problem, find the executable file of the program that is having issues. Then, in File Explorer right-click on it. Alternatively, you can select the file and, in the ribbon, click the Home tab and then the Properties button, in the Open section.
The Properties window is opened for the selected file. Go to the Compatibility tab. In the Settings section, check the box that says "Enable this program to work with OneDrive files".
Then, click or tap OK. If more than one user account uses the same desktop application, then it is best to press the "Change settings for all users" button and select "Enable this program to work with OneDrive files" in the new window that opens. Then, press OK in both Properties windows.
This way, the setting is applied to all user accounts on your Windows 8.1 computer or device, for that desktop application.
The Smart Files feature in Windows 8.1 and OneDrive is definitely interesting and, like all technologies, it can fail in some scenarios. I wonder if many users have problems with it. If you do, don't hesitate to share your story using the comments form below.