Internal conflict is the point at which a character has to decide to admit to themselves what the issue going on in their head is and to take some sort of action on it. For some characters such as Dante (Dante's Inferno), this is dealing with depression and seeing the things that await him in Hell if he commits suicide. For others, it's working an issue that is a part of their past, such as PTSD flashbacks from war.
I'm not entirely sure how to say where in a story this conflict takes place, as it varies from piece to piece. Hopefully, however, this provides some better understanding of the concept.