Difference between internal and external doctoral studies in Germany As I am looking for a PhD scholarship in Germany, I've come across an internet site which contains a database of scholarships. One of the questions asked there is whether I am pursuing "interne Promotion" or "externe Promotion". 

According to my colleague, the internal doctoral studies might mean that I am fully occupied at the university, whereas the external studies would occur if I were employed in industry and had to visit the university occasionally for getting feedback from my professor.

Is the explanation of my colleague correct? Are there any further nuances?

Also, why would it be asked for a scholarship?
Keep in mind that most German PhD positions are not funded through "scholarships" but instead through standard labor contracts. Consequently, any listing of "scholarships" will likely include all forms of funding for graduate students. Filtering by internal or external positions will allow the database to select if you are being "employed" by either a university (internal) or a company (external).

There may be some nuances and particular issues depending on the school and faculty with respect to residence time, composition of your thesis committee, and format of the defense (among other issues) according to whether you're doing an interne Promotion or an externe Promotion. However, it's hard to say in advance if you'll run into this or not.