Now I am confused. Doesn't YUI JS have to do with loading or not Yahoo Libraries for using their javascript widgets? I didn't think that had anything to do with running custom javascript code?

<a href="http://developer.yahoo.com/yui/" target="_blank">Yahoo! User Interface Library</a>

All I know is that this code wouldnt run unless I enabled it:
<script type="text/javascript" src="external.php?type=js"></script>
<script language="" type="text/javascript">
<!--
for (x = 0; x < 10; x++)
{
document.writeln("<a href=\"showthread.php?t="+threads[x].threadid+"\">"+threads[x].title+"</a>, ");
}
//-->
</script>

Oh, that is different. You enabled External JS Syndication, not external YUI. Yes, you are correct, JS syndication will only work if the External.php options are enabled.

So my same question occurs. Does this increase server load at all? Also whats the difference between the two?

No, it does not increase server load (it only affects if external.php can output things for JS syndication). The difference between YUI and JS syndication? YUI is the JS framework used by vBulletin, JS syndication is an external syndication feature of vBulletin.

Is there any security risks with using the JS Syndication?

No, there shouldn't be. It just allows other people to fetch posts from your site, much like RSS.

So other websites can fetch my posts?

They will see the same things as your RSS feed. There is practically no difference between the two (in the information it gives).