Why are some chimney built on the outside of the wall? is it to create more space on the inside?

If it's inside the house it uses up living space. In the "olden days" chimney fires were somewhat commonplace. If the chimney ran through the middle of the house and you had a chimney fire, the house was sure to burn down . There was somewhat of a better chance to save the house if the chimney was on the outside. If the chimney is inside, you have to add extra support to carry the weight of the chimney on the lowest level. If it's outside it usually rests on a cement slab.