Why to Use External List:
In SharePoint 2007 we normally use the BDC web part to fetch the data from external data source (without creating any custom web part) . But there is some limitation like we cannot edit those data in-place inside SharePoint. But the ‘External List’ came in SharePoint 2010 which fetch the data from External Data Source and at the same time we can manage (create, edit, delete) the data in-place in SharePoint site.
We have to follow below two steps to achieve this functionality.
• Create an External Content Type.
• Bind that External Content Type to External List.
Download my article with step-by-step process from here for step-by-step process to create external list.