In the debate of whether or not you should create a blog inside your main website, or create the blog externally and link back to your main website, there are many pros and cons, and much discussion has arisen on the web in SEO forums around this topic. In general, the advice tends to trend towards embedding the blog inside your main website, but here are some of the reasons for going either direction.
Creating the blog outside of your website may have some SEO benefits, if the blog exists in a large network (such as Blogger, Blogspot, Wordpress.com, etc.) as those sites tend to be indexed more frequently than other sites, allowing for greater freshness of content for the blog, and increasing the blog’s page ranks faster than it might in an embedded blog. Inbound links from an external blog will lend that higher SEO ranking to the main site – however, it is also the case that this is a game of diminishing returns, as links beyond the first back to the main site are weighted relatively lower (the second link is worth half the first, the third is worth half the second, etc.) so over time, this is a strategy that will not lend a great deal of SEO relevance to the main website. If you are creating a new domain for the blog, external to the main website, that network benefit is of course lost, and you are forced to build the SEO relevance of the blog on top of building the relevance for the main site as well.
One larger reason to creating a blog separate to the main sites, is if the blog perspective, mood or flavor is sufficiently different from the main site you are trying to assist with the blog in SEO (if, for example, you are looking to blog as a personality / individual, but want to keep your company’s website at a higher level of professionalism than what you might post in your blog). Keeping the separation between the two sites will increase the perception of authenticity for the blog (and perhaps increase inbound links due to this factor), but again, the benefit to the main site is going to be limited over time. Unless you are trying to perpetuate the personality of the blog as a separate brand, many would argue that the benefits of inbound links to good content is better served to contribute to the main site through embedding the blog.