FOAF is an XML file format to descrbie who you are and who you know. LiveJournal creates one of these files for each user (for example, http://crschmidt.livejournal.com/data/foaf), but it's possible that you might have a file on another service, or one elsewhere that you've created yourself, and the External FOAF URL allows you to modify the XML file to point to that one instead.

For more on FOAF, check out <a href="http://foaf-project.org'>the FOAF Project</a>.