Generally it depends.
Small applications that are appropriately packaged as .app and are wholly self contained are relatively portable.
Some applications, though small, require that they be installed on the drive (for reasons I have yet to figure out).
Larger applications like M$ Office, Creative Suite et al install components in locations other than the applications folder.
However you can successfully move all your applications to an external drive depending on how much complexity you want to use (getting involved with symbolic links and such). There is also a bit of risk involved with such a scenario.