http://www.cisco.com/en/US/tech/tk365/technologies_white_paper09186a0080094e9e.shtml
E1 vs. E2 External Routes
External routes fall under two categories, external type 1 and external type 2. The difference between the two is in the way the cost (metric) of the route is being calculated. The cost of a type 2 route is always the external cost, irrespective of the interior cost to reach that route. A type 1 cost is the addition of the external cost and the internal cost used to reach that route. A type 1 route is always preferred over a type 2 route for the same destination. This is illustrated in the following diagram:
As the above diagram shows, RTA is redistributing two external routes into OSPF. N1 and N2 both have an external cost of x. The only difference is that N1 is redistributed into OSPF with a metric-type 1 and N2 is redistributed with a metric-type 2. If we follow the routes as they flow from Area 1 to Area 0, the cost to reach N2 as seen from RTB or RTC will always be x. The internal cost along the way is not considered. On the other hand, the cost to reach N1 is incremented by the internal cost. The cost is x+y as seen from RTB and x+y+z as seen from RTC.
If the external routes are both type 2 routes and the external costs to the destination network are equal, then the path with the lowest cost to the ASBR is selected as the best path.
Unless otherwise specified, the default external type given to external routes is type 2.
Remember that if the subnet keyword is not used, only routes that are not subnetted will be redistributed.
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