External drives have come to be thought of as primarily for back-up although you can use even a USB 2.0 connection to play movies just fine. There are different ways to connect an external drive: --ethernet cable --Wifi --USB --eSATA etc.
If you wanted to share your external drive with others in your local network without having to have your computer on all the time then you will want to look into Network Attached Storage (NAS) as well as Storage Area Network (SAN). Ethernet/Wifi external drives are also known as your personal cloud. While data transfer takes place much faster than over the internet, it is still slower than an internal drive because it goes only as fast as your network.
You could actually take an external drive out of its enclosure and install it internally. You can also buy an enclosure for an internal drive to convert it to an external drive. So the difference between an internal drive and an external drive is only that the external drive is in an enclosure of its own rather than being inside the computer case. The internal connection is much faster than USB 2.0, but it is the same speed as eSATA.
"USB 2.0 tops out at 480Mbps, glacial compared to the 5 Gbps of USB 3.0. You'll never get exactly that 5Gbps throughput, since a) it's shared among the multiple ports connected to the same USB host controller, and b) many devices themselves aren't capable of reaching that level of throughput (spinning hard drives are a prime example). That said, USB's commonaility make it the go-to interface over more esoteric interfaces like eSATA, Fibre Channel, and Thunderbolt." Source:
http://www.pcmag.com/article2/0,2817,2413310,00.asp
SSD drives have a limited number of write cycles. You can read from them all you want, but in order to extend the write life, it may be a good idea not to use it for the very things you might want to use a fast drive for: temp files and swap space. Reading files that rarely or never change is an ideal application. Most people set the SSD drive as the boot drive so they can boot faster. Another advantage is they are rugged. They would make excellent external drives because you can drop them without major consequence, whereas a disk drive's thin metal platters might shatter if dropped. However, most people still think of external connections as slow (USB 2.0) and would consider that a waste of its speed. It's not, if you have the right connection.
So the advantage of Hard Disk Drives is they provide a lot of storage space cheaply and have virtually unlimited write cycles for the life of the drive. The SSD drive is rugged and much faster. The disadvantage of HDD's is they are fragile, use more power, and are not as fast. The disadvantage of SSD is its limited write cycles and higher cost per space.
An internal drive is less expensive than an external drive because it is the same thing less the case and additional electronics.
One advantage of an external drive is that you can disconnect it and take it with you without taking the whole computer and without opening the computer case.
You can install multiple drives, both internal and external and use them for specific purposes. The internal drive is usually the one you would install your OS to and that one would also have your swap space and your temp folders. An external HDD is great for storing media, compressed files and anything really.
If the external drive was a slow USB 2.0 model then you could still play movies from it just fine, but you would not want to edit a movie on it as it would be frustratingly slow.
Many modern computers allow you to set up multiple drives as a single logical volume using RAID. Usually you would need to have identical drives to do this, so you might have two or four HDDs set up as a single RAID volume which can increase speed or reliability. You can use RAID with either HDD or SSD and with either internal or external drives.
You can have both a SSD and a HDD and play your games from the SSD drive for the max performance of your games while using the HDD for other purposes. Having a mix of drive types or having both external and internal drives will not impede the performance of the rest of your system. In older computers you could have two ATA drives connected to the same IDE channel and the transfer speed would be limited to the slowest device. This is not the case with SATA drives. Both SSD and HDD are SATA drives. USB does use up CPU cycles, so it is possible that heavy use of external USB drives and devices could slow down the computer enough to notice it, but eSATA would not. With an i7, you should be able to run GTA 5 on your SSD while running a backup to an eSATA drive without any problems.