External SSDs are the modern equivalent of portable HDDs. They offer the advantage of faster data transfer speed. Also, they are less prone to error or damage than mechanical HDDs. This is because they have no moving parts.
Additionally, external SSDs are far more compact and lightweight when compared to HDDs, and offer better speeds and reliability than a thumb drive.  If you have important data that needs to be moved it should be stored on an external SSD.
Also, the entry-level Macbook Air M1 comes with only 256GB of storage. External drives are the only way of expanding it, as they are not built to be upgraded.