Internal Resistance of Circuit:

As mentioned earlier in the section on batteries, every source of electricity, such as a cell or generator has resistance to current flow called internal resistance.

• Cells (and batteries): The internal resistance is mainly due to the resistance of the electrolyte. This varies considerably with temperature and concentration of the electrolyte.
• Generators. Internal resistance is mainly the resistance of the wires which form the internal windings.
• Electronic Power Supplies. Here the internal resistance is due to the resistance of components within the power supply.
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  When the source forces electrons around a closed circuit they must pass through the internal resistance of the source, thus causing a drop in voltage within the source itself, i.e. the source has to do work to push current through itself. This loss of potential or 'voltage drop' may be referred to as lost volts, since they are not available in the external circuit, thus the terminal voltage is less than the emf by the value of the lost volts when current is drawn from the supply.

Loss of potential only occurs when current flows from the source.  If therefore the external circuit is open, no current flows and the terminal voltage is equal to the emf.

The Size of the 'lost voltage' is determined by the internal resistance and the current flowing (Ir).  For a given emf the larger the external resistance, the smaller the current and the smaller the 'lost volts'.  Thus if the internal resistance is much smaller than the external resistance the 'lost volts' is very small and the terminal voltage is almost equal to the source emf.