Brief summary -
There's like 1320482397492387980 threads about it, but I'll summarise as best as possible.
Say theres a class of 5 students - A B C D E
They do their internal assessments, the school submits their RAW internal marks to BOS. Let's say they ranked A,B,C,D,E respectively.
They do their HSC - results are as follows -
A - 87
B - 85
C - 90
D - 77
E - 98
As A comes first internally, he/she is designated the highest external mark for their internal mark. Hence, A gets 98 (it's not stealing, they deserve it as they did come first internally, the external exam measures the 'potential' of the cohort). I'm not sure whether the last person (E) gets designated the lowest external mark, but what they do is collect all the marks (to form a 'pool' of marks) from the external HSC (of course after giving A his internal) and distribute the marks ACCORDING TO THE MARK GAPS BETWEEN EACH RANK. This is to cater to people who come first by 20% and what not.
You ALWAYS ALWAYS keep your external mark as your external mark, this does NOT change. Your EXTERNAL marks determine your INTERNAL mark - the lower you are, the more you rely on those ranked above you.