When we need to use external reference in Catia V5?
External references are used in assemblies with multi-model links for example to set an relation to design surfaces (this is the ext. reference) and structure elements "behind" the design surfaces.
Some hints you may find in my tutorial. https://www.youtube.com/watch?v=1-xpD5GoxNU
The floor of the car is the ext. ref. for the cross beam. If the car floor changes, the beam will automatically get updated.
External references are used in assembly level design ,means you have to design a part or modify part according to another part already present in the assembly,
Then you can use surface/sketch/face or other features of part already present-to create a new part ,This process is also known as Designing in Context in Catia.