A wastegate is just a valve that opens to let some exhaust bypass the turbo to control your boost level. The factory valve contained in the turbo/aftermarket downpipe is usually too small to bypass enough exhaust to control boost on a highly modified motor plus it's slower to react.
An external gate is usually welded to your crossover pipe, before the turbo. It does exactly the same thing as the factory piece but the valve is twice the size and opens much farther. They provide very precise control of boost, no spiking or boost creep. When you hit your max boost setting it opens up, letting some exhaust out of the crossover, bypassing your turbo. It can either dump the exhaust into the atmosphere (loud) or have another pipe welded to dump it back into your exhaust system after the turbo.