What is the difference between External ID and Unique ID?

External ID:

          This is a field that usually references an ID from another (external) system. For    instance, if the customer has an Oracle Financials system that they will be linking with Salesforce, it may be easier for them to be able to refer to the Oracle ID of account records from within Salesforce. So they would create an external ID in Salesforce and they would load the Oracle ID into that field for each account. They can then refer to that ID field, rather than the Salesforce id. 

Unique ID field

This is a setting for the field that will prevent you from using the same value in multiple records for the unique field. So if I create a 5 character text field and make it unique, and I create a record with the value "12345" I will not be able to create another record with that same value in the unique field. If I try to do so, I will get an error saying that the value is already in use.

Often, External Ids are set with the unique property so that the IDs will be unique to each record.

The fields with below data types can only be external Id

1. Number
2. Text
3. Email

During upsert operation,

1. If External Ids are matched, it will update the record.

2. If External Ids are not matched, it will create a new record.

3. If External Ids are matched more than once, it will throw an error.

How to set field as external Id field