Hi there,
When switching to External file – GP should automatically generate the file.
If it doesn’t then hit the Regenerate CSS button. If you’re not sure hit it anyway 🙂
Yes this can improve performance – as it removes the majority of the CSS that is traditionally inlined in the <head> of the theme. As an external file, it can be cached by the browser, so only loads ONCE on initial load. If you’re using an Cache/Optimization plugin it can be combined as well.