Outside more room left inside for other stuff.
More likely to rip a hole in your gear when you toss your pack down.
More options for weight placement (which can lead to off-blanced pack.)
More likely to fall off.
Inside Better protection from the elements, rocks, branches.
Weight is closer to your center of gravity (and usually better balanced).
Less room inside your pack.
Will never fall off.
Ultimately, it is a matter of personal preference, but I always encourage people to pack it inside -- and insist they do when borrowing my gear.
PROTIP: When forced to pack something outside (ie, external frame, or carrying too much stuff) always use closed loop tie-downs that are threaded through a closed loop on both your pack and your gear.
That way, if the gear slides off without noticing, it will still be chained to your pack.
outdoors.stackexchange.com/users/86/Lost
If it fits, it's better to put it inside.
That way it stays dry and is protected.
If you put down your pack on rocks or small limbs, it can poke holes in the tent cover or sleeping bag cover if they are strapped to the outside.
(In some conditions, a wet sleeping bag can be a safety issue.)
The more tired I get, the harder my pack seems to hit the ground.
Odd, huh?
Also, it's more comfy if you have the weight of the pack close to your back.
When you strap heavy stuff on the outside, it moves the center of gravity away from you, which pulls harder on the shoulder straps.
outdoors.stackexchange.com/users/61/xpda
One of my tents goes in my rucksack, but I have another one which has two carry bags which strap nicely to the sides of my rucksack, keeping the weight well balanced and close to me.
In dry conditions I'll strap the sleeping bag to the outside to make space, as it is light
it doesn't affect the center of gravity much.
Center of gravity and keeping kit dry should be two important considerations.
I have never had damage to kit from carrying it on the outside, but this should be a consideration if you are travelling in an area where there is a risk of snagging or tearing.
outdoors.stackexchange.com/users/66/Rory Alsop
For me, the sleeping back is the most important thing to be kept dry, so it would be the last thing I would decide to strap outside.
It may be not the case if you have very durable waterproof bag for your sleeping bag.
outdoors.stackexchange.com/users/557/Danubian Sailor
I have the sleeping bag inside (must be kept dry, so there must be room for it).
And the tent under the pack in its stuffsack, (when wet I don't want it inside anyway)
tied to the pack by running a strap through the drawcord and wrapping the tent and stuffsack inside my foam mat (if I bring it) and groundsheet to protect the tent.
Or in the outside net pocket if it needs drying.
outdoors.stackexchange.com/users/2025/nsandersen
When I bought my pack, we were told to always pack the tent and sleeping bag in the pack.  Since then I have seen a lot of articles and hikers doing the outside.  What are the benefits on packing the tent and sleeping bag in vs. strapping the tent and sleeping bag to the outside of the pack?
Tent and sleeping bag: pack inside or strap outside a backpack?
outdoors.stackexchange.com
<backpacking><tents><backpacks><sleeping-bags>
outdoors.stackexchange.com/questions/1268
outdoors.stackexchange.com/users/127/Russell Steen
This is a matter of personal preference, although inside gives better protection from the elements, rocks and branches. If it fits, keeping the sleeping bag inside keeps it dry, which is important. If it is outside the pack, there will be more room left inside for other things. Packing the sleeping bag inside is preferable for keeping it dry, though packing it outside allows more room for other things.
It's better to pack sleeping bags inside to keep them dry. Putting it outside allows more room inside.