Many unusual and promising properties have been reported recently for the transition metal trichalcogenides of the type MPS₃ (M = V, Mn, Fe, Ni..), such as maintaining magnetic order to the atomically thin limit, ultra-sharp many-body excitons, metal-insulator transitions and, especially for Fe₂P₂S₆, giant linear dichroism among others. Here we conduct a detailed investigation of the electronic structure of Fe₂P₂S₆ using angle-resolved photoemission spectroscopy, q-dependent electron energy loss spectroscopy, optical spectroscopies and density functional theory. Fe₂P₂S₆ is a Mott insulator with a gap of E _gap ≈ 1.4 eV and zigzag antiferromagnetism below T _N = 119 K. The low energy excitations are dominated by Fe 3d states. Large and sign-changing linear dichroism is observed. We provide a microscopic mechanism explaining key properties of the linear dichroism based on the correlated character of the electronic structure, thereby elucidating the nature of the spin-charge coupling in Fe₂P₂S₆ and related materials.