Inline CSS places the code on [b:pbtpjcbi]every[/b:pbtpjcbi] page on your site. If you keep it in an external file, then users will only need to download that code once, no matter how many pages they visit. Inline CSS also fouls up media specific style sheets, such as handheld and print style sheets.
A specific problem which occurs, is that references to images from the CSS generator are incorrect for inline CSS, so those images will not show up unless you manually modify the code to suit.
In general, separation of content and presentation is desirable. This was the purpose for the creation of CSS in the first place, but the original concept has been muddied by the ability to include inline styling of elements.