The difference between internal and external development is the fact that internal development refers specifically to sexual organs, while external development refers to the many physical changes that occur in an organism before it reaches sexual maturity. Different species of animals can have radically different types of internal and external development.
Much of an organism's development is closely tied to its sexual maturity and ability to eventually reproduce. Some of the most important changes that occur in an organism, even if they do not seem related to sexual maturity, are caused by processes that also bring the animal to sexual maturity.
Biologists refer to the development and growth of sexual organs inside of the body as internal development. These changes continue to occur until the organism is able to reproduce sexually. By contrast, external development refers to changes that are tangentially related to sexual development but are specific to other, non-sexual organs. Humans going through puberty are an excellent example of both types of development. The growth of the female sexual reproductive system, including the ovaries, is a form of internal development. However, the increase in muscle size, widening of hips and changes in height are all examples of external developments that humans go through during puberty.