Inline method and external method are the two basic types of access methods. While they both use the same remote shell access programs, such as rsh, ssh, or telnet, they differ in the file access methods. Choosing the right method becomes important for editing files, transferring large files, or operating on a large number of files.
The performance of the external methods is generally better than that of the inline methods, at least for large files. This is caused by the need to encode and decode the data when transferring inline.
The one exception to this rule are the scp-based access methods. While these methods do see better performance when actually transferring files, the overhead of the cryptographic negotiation at startup may drown out the improvement in file transfer times.
External methods should be configured such a way that they don't require a password (with ssh-agent, or such alike). Modern scp implementations offer options to reuse existing ssh connections, which will be enabled by default if available. If it isn't possible, you should consider Password handling, otherwise you will be prompted for a password every copy action.