An internally balanced motor has a flexplate and pulley hub that are "neutral balanced", which means that if you stick them on a shaft and rotate them to different positions they will stay put and not rotate on their own (one side isn't lighter or heavier than the other). All of the balance weights required to balance out the pistons and rods and crank throws are located on the crankshaft itself, next to each rod journal so the balance weight is as close to the rod journal as possible. An externally balanced motor still has counterweights on the crankshaft but they are not as heavy as in the internally balanced case, and to make up the difference weight is added or removed from portions of the flexplate and pulley hub. If you look at a stock TR flexplate you will see several large holes on one side, making that side lighter than the other side, and the pulley hub has a large weight on one side also. When you are balancing a system like this what matters is the weight of each piece times it's distance from the crankshaft axix, so a little weight out near the edge of the flexplate is the same as a lot of weight near the axis like on a crankshaft counterweight. That makes the crank lighter and thus cheaper to make. Now, does it matter?
Do a thought experiment: Picture a round shaft one foot long. At one end attach a weight on one side of the shaft, and at the other end attach an equal weight to the other side. Lay the shaft in a couple of V's and check it's balance. Since the weights and their distances from the center axis are the same, no matter where you rotate the shaft to, it will stay there - it is statically balanced. However, if you spin the shaft at speed it will want to tip over like a top just before it goes out of control. Look at just one half of the shaft, from the middle out to one end. When it spins, that weight is trying to fly outwards from centrifugal force so the shaft tries to go with it and therefore tips towards the weight, rotating about the middle of the shaft along its length. Now look at the other end. It is doing the same thing, and the direction it is trying to tip the shaft is the same as the first weight. If you have a couple of bearings on the shaft, then at slow speeds everything will be okay but at some critical speed determined by the weights, sizes, and rpm, the bearings won't be able to control the force trying to tip the shaft and bad things will happen (bearing destruction, shaft flexing, etc). Now change up the weights on the shaft. Put both weights on the same side of the shaft, still with one weight at each end. Now it is statically out of balance, so add a third weight at the center of the shaft on the opposite side, twice as heavy as each of the first two weights. Now the shaft is back in static balance - it will stay put anywhere you leave it in the V's. However, now look what happens at speed. One end weight and the middle weight will act as a pair and try to tip the shaft one way about a point halfway between the weights, but the other end weight and the middle weight will also act as a pair and try to tip the shaft in the opposite way about a different point halfway between those two weights and this will cancel out the effect of the first pair of weights, so now at speed the shaft is dynamically balanced and will remain stable up to much higher speed. Eventually bearing slop or shaft flex will still set a limit, but things are much better. This is essentially what a crankshaft looks like. There are multiple weights on various sides of the crank that all have to add up to "zero" so it is in static and dynamic balance. Okay, back to the thought experiment. If you made the shaft 10 feet long instead of 1 foot long, it would still be in static balance. However, the farther apart the two weights in a pair that are trying to tip the shaft are, the more leverage they have and thus the more they will flex the shaft and beat on the bearings. Move all three weights right next to each other and you minimize the leverage, making things much stiffer and letting the shaft run at a much higher speed before bad things happen. That's the difference between internal and external balancing - the internally balanced motor is inherently stiffer and can run at higher rpms for the same main bearing and block stress because the balance weights are as close as possible to the rod throws (there, we've come full circle
). I also skipped over some fine details about the weight actually needed for simultaneous static and dynamic balancing but this gives the idea.
Now, the real question is, at what rpm does it really matter? For that, since I'm not a professional engine builder I'm going to have to give a pretty fuzzy answer based on reading and hearsay mostly from the Chevy world and say somewhere around 5000-7000 rpms. Below that the crankshaft stresses from external balancing don't seem to hurt anything any faster than the other stresses from lots of boost and the occasional detonation. Above that, you need all the help you can get. In that range, well, um, I can't say exactly when you "need" internal balancing but I will say it never hurts and will always be more reliable.
Hope this helps.