An internal entity is a parsed entity. If the entity is not internal, it is an external entity. External entity references is used for replacement text that is really long. The information is then kept in another file. External entities allow an XML document to refer to an external file.
External entities contain either text or binary data.
If they contain text, the content of the external file is inserted at the point of reference and parsed as part of the referring document. Binary data is not parsed and may only be referenced in an attribute. Binary data is used to reference figures and other non-XML content in the document. The entity declaration in this example refers to documents that are located in different sections. They are placed into the XML file by using the entities, rather than cutting and pasting the contents of separate files together.