Sorry you’re all mostly wrong but I don’t blame you becuase its document like this everywhere!
It doesn’t reduce page loading file size because JS files (unlike CSS) are not cached but reloaded on every page view! It doesn’t help SEO at all unless your JS is massive and I am talking about silly sizes like 300k of it. In fact dynamic sites should possibly think about NOT having an external link to speed up loading because each external link has a ping rate that slows the site down!
However it does make for coding static sites easier
More information can be found here:
http://www.websiteoptimization.com/
Test your own site for speed Optimization here:
http://www.websiteoptimization.com/services/analyze/
And the book can be found on amazon.com for $28.78