In the previous version of crm (3.0) the external connector license was already a very mysterious topic. There was always discussion why and when to use it or how to use it.
Guess nothing has changed :-) The license is still surrounded with a lot of discussion and confusion. The books about crm 4.0 only spend a small section about this license.
In general it's just a "key" nothing more or nothing less. There are two versions the full license and the read-only license and only available for Professional or Enterprise Edition of Microsoft CRM 4.0. You have to use it when you want to work directly with the data contained in de ms crm database.
The external license for 3.0 was pretty expensive, so there were some workarounds. At this moment the prices are reduced a lot compared to 3.0 versions and in most cases it's not worth the extra effort to create or build a workaround.
Nevertheless if you have issue with the use of this connector, just post it in the comments.
*** UPDATE ***
The basic rule is if the user hasn't a AD account you would need the external connector licences.
Also check Menno's post about this topic.