I'm not sure about the dictionary definition but external generally means that the way the grading system works is that everyone in the country takes a standard set of tests for that particular grade/subject, and those tests are graded by people outside your school where the grader doesn't have any influence or bias so that the exams can be graded as fairly as possible. That's how AP tests work at least and those are considered external examinations.

By that logic internal examinations refer to systems in which grades are determined by the instructor of the course or by people inside your school where the grading policy might defer from teacher to teacher or certain teachers might have different grading criteria which might change your letter grade. There isn't a universal examination pattern by which everyone in the country or state or region is graded in an equal manner, and your final marks/grades are distributed locally.