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I think I would be safe to presume that when you say 'Internal Reference' you mean a reference from someone within the company you are applying to. This being the case the 'insider' can vouch for you on a more personal basis rather than by phone or email, it's like someone meeting directly with your boss.
It also depends on the calibre of the person inside who is vouching for you - there is an old saying 'Birds of a feather flock together', if the insider is prone to being troublesome there is a good chance that you may be too, if the insider is a perfect employee you too could be of the same character. This is not always the case but usually a good indication.
When applying for a position it's always good to have personal references where possible, especially professional references. One thing to remember is that a reference can reflect badly on both parties so a good insider will think twice before recommending a friend for a position, I recently worked with one company in Afghanistan where the rule was if hiring you turned out to be a mistake and you were fired, the person inside who recommended you was fired too – but this was an extreme.
