Generally, an internal link is a link that goes to a the same domain (e.g., example.com to example.com/page2.html) is considered an internal link. There are times where links within the same domain may be considered external, such as when there are various different sites within the domain. For example, the site "someplace.com" could have distinct subdomains such as cooking.someplace.com, autorepair.someplace.com, etc. In this case, one subdomain's links to another subdomain could be considered an external link, even though they might be hosted on the same server.
How is an internal link different than an external link?
An internal link only links to pages in the same domain or subdomain an external link can link to any domain. For example, both of the links in this paragraph are linking to internal links on the Computer Hope domain.