Internal storage of Android devices is devided into several partitions, each dedicated to a special "task". Some of the more important ones include:
/system: This is where the Android system and the pre-installed apps reside. It usually is mounted read-only, so on non-rooted devices you cannot write here (with the exception of applying a system update, e.g. OTA, or flashing a new ROM)
/data: Here the downloaded apps and all app's data are located. Additionally, some system settings are stored here, log files, and more
Your sdcard usually has a single partition only -- but also could be split into multiple partitions. The latter is mostly done for things like App2SD+ or Link2SD, which provide extended features for moving apps, data and caches from the internal storage to sdcard.
For more details on partitions, you might want to visit Wikipedia.