The Add/Edit External Tool Dialog lets you create or modify the settings for an External Tool.
For each External Tool that you configure, you can decide if the tool is enabled for File Diffs, File Merges, or both. You can select different executables and command line argument templates for each mode.
All of the various tool settings are grouped by category into a series of Pages whose titles are listed on the left side of the dialog. You can click on these titles to visit each of the various Pages.