Internal External References
A VMDL can store data internally or externally.
An internal reference is written into the VMDL file, while an external reference is a content-relative path to the external file.
Making data external is useful when you want to share data between models. For example, if there are characters with shared attachments, each of the character VMDL files can refer to an external attachment list. When that attachment list is edited all VMDL files that refer to it will get updated.
Using Model Editor
When an item is "made external" in Model Editor via an Outliner right-click menu option, that data is written out as a separate file and the VMDL then references that new file.