An external reference is created when one document is dependent on another document for its solution. If the referenced document changes, the dependent document changes also.
In an assembly, you can create an in-context feature on one component that references the geometry of another component. This in-context feature has an external reference to the other component. If you change the geometry on the referenced component, the associated in-context feature changes accordingly.
An in-context feature updates automatically if the update path is available. The update path is contained in the assembly where you create the reference. If the update path is not available (for example, if the assembly document is closed), updating occurs the next time you open the assembly that contains the update path.
Update paths for in-context features 
are displayed in the FeatureManager design tree of the assembly. You can hide or show all of these in-context icons by right-clicking the top-level assembly icon 
and selecting Hide Update Holders or Show Update Holders.
You also have the option to not create external references when designing in the context of an assembly.
To list the external references on a part or feature, right-click the part or the feature or right-click the update holder , and select List External Refs.