The internal replies switch allows image owners to give a response to each comment which others post in the image's thread, which will be shown inside the comment rather than as a distinct comment.

Suppose you're running a software directory where comments consist of reviews of the software. You may want to allow the developer of the software to internally reply to these comments.

Important: The link prompt to respond to a post internally will only appear inside a post when both these conditions are met:
1) You are the opening poster of the thread.
2) The post belongs to someone other than you.

(Of course you also need usergroup permissions set to allow you to post comments in general, and for the internal replies switch to be on.)