If I wanted to reinstall OSX and choose archive and install: 1.) Do you need an external drive to archive onto? Or does it archive on a part of the internal HD? 2.) After I reinstall, am I going to have to reinstall all my apps? I'm wondering because I used Monolingual to remove some languages and architectures, not realizing that it'd screw with Rosetta.
1) No, the archiving is entirely internal. 2) It depends on the application. Drag-install apps will NOT require a reinstall. Anything that uses an installer will.
It will only archive user folders and will do so in a folder it created called "previous systems" on your current system partition.
No, you don't need an external hard drive and no you are not going to have to reinstall all your apps.