According to Wikipedia, an internal link …is a hyperlink that is a reference or navigation element in a document to another section of the same document or to another document that may be on or part of the same domain of the Internet. By creating internal links, you alleviate the laborious process for the user of scrolling through an entire site and allow him/her to utilize these navigational aides to jump throughout the site.
An external link is a hyperlink that is created within your website, but directs a user to another website by using anchor text. An external link also refers to a hyperlink on another website that sends searchers to your website. By having numerous websites contain links to your website, you can drastically increase your traffic and improve your ranking. It is good SEO practice to keep your outbound links to ten or less. Also, be sure that the pages that you are linking to contain a mid to high ranking in order to build credibility with the search engine bots.
It is vital to ensure that the anchor text on both internal links and external links to your website, if at all appropriate, contain your keyword(s). Replace useless words like “Home,” “More” and “Read on” with words more suitable to your keywords. This could drastically boost you up on the search engine results page, thus increasing your website’s traffic.
To find more information about how to create an internal link, visit W3C – Internal Link. For instructions on how to create an external link, visit W3C – External Link.