The prefab is a referenced object. Like you said, it works great as a "master copy" You can copy it all over your scene, and change the prefab, and all the copies change. A very useful function.
When you "target" a prefab, you're targeting a source. Since it doesn't exist within the scene, whatever is targeting it can't find it.
Imagine you're baking a cake and you need flour. You know the flour exists at the store, but knowing it's at the store (or even which exact shelf it's on) doesn't help you bake the cake. You have to have the flour in your kitchen to make use of it. Prefabs are like storage for assets - the game is aware of them, but can't make use of them until they're present within the scene.