As far as i know, an external no follow tag i use so that all links from outside will not gain BL by linking to that blog, but internal linking of blog post will still a DO FOLLOW; meaning it will count as backlinks to blog itself.
The nofollow prevents the flow of pagerank. External is separate and only of real use when creating HTML 4.0 or XHTML 1.0 strict standards compliant opening of links in a new window (using additional javascript) because target="_blank" is depreciated. That's my understanding at least, I've not come across any other clear benefit of using external in the rel attribute.