Internal memory and internal SD card are two separate things in Android. Internal SD card is simply a part of the internal NAND that the OS treats like a normal SD card. Many phones don't support external SD cards but have moderate amounts of storage, so they compromise.
I'm not sure I follow.
Many phones don't support external SD cards, but officially their apis still need to support external storage with internal SD memory anyway, otherwise they won't pass the Compatibility Test Suite.
The problem is that the internal SD card and external SD card are treated differently.
Android apps by default work off the internal SD card. It's actually a separate partition that's mounted at the same place as old phones used for external SD cards. You can't change the default to use an external card. You can't recover space from that internal partition.*
Here's the kicker. Now external SD cards are mounted somewhere else. (/mnt/extSD) The thing is that many apps don't work with the external SD card. Especially after the latest android release. With android KitKat apps with the, misnamed, external storage permission can read and write anywhere on the internal card. The problem is that now they can read anywhere on the external card, but can only write to a directory on it which is something like "/mnt/extSD/data/app.name" There are a few exceptions for system apps like the camera, but regular apps have to use this weird naming scheme.
It's actually a good security feature, but the fact they don't apply it to the internal SD card just seems to be Google deliberately moving people away from phones with an external SD card. Not cool.
*Without rooting, and knowing exactly what you're doing at least. No way a non expert is doing this.