An external system is any application that accesses Moodle and its data in one way or the other. There are eight steps that have to be performed to complete the setup, which follow the workflow described on the web services overview screen:
Each application should have a separate user account. This way, you can control the capabilities that each external system is going to use. Our user is aptly called web service.
Depending on the protocol you've selected, you have to allow the respective permissions for the user. You achieve this by creating a new role with any of the four capabilities,