Hi thingamjig,
you used to be able to get internal dsl models - they would plug into a slot on the motherboard called AMR - i forget what it stands for now

- but this did not take off and was soon cancelled...the slot doesn't even get used anymore.
The difference between internal and external modems (speaking of 56k modems here) was that the external ones were all "hardware" and most of the internal ones were "software"
The difference being
hardware modems would do the work in the actual modem itself, making for a faster download/connection
software modems would require windows to do approx half of the work as well - causing slower connection speeds, and if you were playing games...a lower framerate and other slowness.
This is also why external modems cost a fair amount more (in australia, they were about $150 as apposed to the internal modems where $45 ish)