External vs. Internal Tag Links

I’m trying to get a handle on tags and the whole topic seems very dense. I installed ultimate tag warrior and have gotten tags to show up on my site which link to internal pages on my site which display posts of similar tags.

When I look at other wordpress blogs and click on tags there, I am redirected to an external wordpress tags page: http://wordpress.com/tags/

What is the difference between these two methods of tagging and is there a way to link to both? Can services like Technorati read both kinds of tags?