Well, first of all you NEED a scratch disk. It is the location where all your temporary files are written, waveforms, render files, all sorts of cache files, etc. By default it is your internal drive. The advantage of having an external drive as your scratch disk is that it takes pressure off your internal drive, which is already handling whatever OS and programs you've got running. This improves performance. A fast external drive is also generally a pre-requisite for streaming multiple video tracks (ie. multicamera editing), or for high bitrate video (ie. uncompressed) etc.