Al, thanks for your post and maybe you are on to something. I have CentOS6 and Linux.
I wonder if it has something to do with the way the video tries to "stream" both the video and the captions. Maybe I got lucky at MoodleMoot and just had fast connections for my referenced vtt file to kick in. I wonder if when the vtt file is uploaded, Moodle caches it immediately whereas if it is referenced on what appears to be an external URL, Moodle tries to coordinate the reading of the vtt file with reading and displaying the video.
Regardless, I don't mind uploading the vtt files since they are quite small and do not significantly increase my moodledata size. If Moodle forced me to always upload videos, this would be a different story. None of my videos are uploaded into my Moodle.