Apple - Why is my Final Cut Pro library file so bloated?

You are right to leave media in the original location to help save space. Beyond this setting, take a look at your Library's settings.

Manage Storage Locations

Final Cut Pro is likely creating proxy and optimised copies of your original media. By default, these temporary files are stored within your Final Cut Pro libraries. You can change the location of temporary files, see Final Cut Pro X: Manage storage locations.

When you finish working on a project, ask Final Cut Pro to delete all associated runtime created files:

Final Cut Pro.app > File (menu) > Delete Generated Library Files…

This will dramatically reduce the file size of your library.

Turn Off Background Rendering

Go to Preferences -> Playback and make sure "Render: Background render" is NOT checked.

An important caveat is that you might want a Mac that can render in real time for this to work. If the rendering falls behind during playback you get some odd appearances. YMMV but it's worth a try.

After you turn that off, go to Delete Generated Library Files, and Delete "All" Render Files. Your file will be tiny in comparison.

If you have Background Rendering enabled, then the render data will be generated into the fcpbundle file. I have a project which requires under 30 MB of space, but when I had background rendering on, it was over 7GB! The largest I saw was almost 20GB. Obviously then if you have Time Machine on, it's going to back up this changed file EVERY TIME Time Machine runs. That's what drove me to figure it out - my backup disk was suddenly chewing through GB.