Adding insulation to a wall changes the place where the dew point occurs ( the point where air meets a temperature that causes moisture to condense out of the air as water).
The effect of external insulation is to warm the wall. This, in turn, moves the dew point outwards towards the colder external air, thereby reducing the risk of condensation appearing on the internal surface, leading to such issues as dampness.
In some instances, however, there is a danger that the dew point can occur between the insulation and the wall or actually in the insulation itself. A vapour barrier is usually installed during Internal Wall Insulating to deal with this issue.