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Your internal links tells both google and your visitors what you concider to be the most important things to be found on your webpage. Make sure you link relevant pages correctly, you might benifit greatly from it. Your visitors will appreciate good and relevant links and Google is smart enough to interpet and understand what is relevant for each and every page, so don't try to confuse Google with spamy links. Keep it clean and structured.
External links should be threated with great respect and only added when there is a real need for it. Links to other sites tells Google that you/your website vouche for that webpage. In Google's world its all about thrust, and when you link another website Google will concider that as a recommendation. Never link to many external sites, and always link relevant sites. If you blogg about cars then its recommended to link relevant material (cars, engines, motorbikes and similar).