What is 'vision externally' in AN8.66?

I am totally confused here. If by 'form' we mean body, how not to perceive it internally. And what is meant by 'see visions externally'?

'form' in this context doesn't mean the generic physical body, but the body part that serve as a basis for an internal meditative kasina (ie one's own body part, hence "internal"); OR an external object like a blue disk to serve as a basis for an external kasina (ie. external objects, hence "external"). See Ven. Bodhi's translation and his note citing the Comy.'s explanation:

Bhikkhus, there are these eight emancipations. What eight?
(1) “One possessing form sees forms. This is the first emancipation.
(2) “One not percipient of forms internally sees forms externally. This is the second emancipation...

And Comy's explanation:

Mp: 'Here, form' is the jhana with a form object, which has arisen by way of a blue kasina, etc., based on something internal such as head hairs, etc. One who gains this [jhana] is said to possess form. One might also see forms with the eye of jhana externally, such as a blue kasina, etc. What is indicated by this are the four form-sphere jhanas in the case of a person who has attained jhana through the kasinas with an internal or external basis.

Mp: 'One who is not percipient of forms internally' is one who does not attain form-sphere jhanas based on his own head hairs, etc. What is shown by this are the form-sphere jhanas of one who attains jhana externally, having done the preliminary work externally.

Regarding what is seen, a key part to the more detailed instruction on visions is found an AN10.29. The detailed instruction focuses on how visions are perceived (i.e., "pretty or ugly") and not on what is perceived.

AN10.29:8.1: Not perceiving form internally, someone sees visions externally, limited, both pretty and ugly. Mastering them, they perceive: ‘I know and see.’

Mastering such visions therefore requires understanding and letting go of the associated attraction/repulsion. That takes skill because everyday convention follows pretty and avoids ugly. Mastering that flood of convention requires letting go of the underlying tendency to crave pretty and avoid ugly. For example, if one sees someone pretty or ugly externally, to master that perception one would focus on the truth that we are all bags of bones.

SN22.76:9.1: The master’s knowledge has arisen: ‘This bag of bones is my last.’

First thing, you shouldn't be relying on B. Sujato's translation for meditation specific terms. He has gross misunderstandings of key words like kāya (physical body), rūpa (in meditation context, usually means 4 elements of physical body of meditator). So in his translation, he inconsistently translates rupa sometimes as 'physical form', sometimes as 'vision', according to his wrong understanding of jhana and arupa samadhi.

Going by a straightforward, and correct EBT interpretation, 'rupa' translates consistently as 'physical form of the anatomical body made up of 4 elements and 6 sense bases active - you can see, hear, touch, etc.'

So the first base of liberation (vimutti), having form (rupa) and seeing form is referring to the point of view of being in the 4 jhanas, where the 6 sense bases of the physical body are active.

The second base of liberation, one is in an a-rupa (form-less) samadhi attainment, you are in a meditative state where you can't perceive your own physical form of body anymore, can't hear sounds, 6 sense bases are divorced from the mind. But you can perceive external forms, for example seeing visions of the rupa (form, 4 elements) of external world, other beings, etc.