External links are hyperlinks that links between two different domains like domain A post their links on other domain is called, external links.
website A --Link--> website B
It play important role in improve your ranking, traffic and Pagerank because external links pass link juice, which are very beneficial to increase ranking and Page rank of your website.
Internal links are hyperlinks that point the links of same domain like internal sub pages links or deep links.
It helps to navigate the site and spread the link juice arround site.
Internal links point to links on your site, external point to other sites. Simple enough right. You got an internal infection it is within you right...You pass a infection to someone you are doing so elsewhere or externally right. Always use protection in your private life, but I think you get the idea right nuff said.