First of all, the way you pose the question, it's definitely not a Windows 98 question. The Computer Help forum would have been a better place. I'll explain.
Go into the BIOS setup, and search for the boot sequence. Most BIOS'es let you make a sequence out of diskette, hard disk (=c:, or master on first IDE) or cd-rom (it makes sense to have the hard disk first, in normal circumstances). If there isn't an external hard disk mentioned, it isn't supported. In fact, I know of no BIOS that supports it, but I must admit I know very few BIOS'es, so yours might be an exception.
The BIOS, as you might know, comes with the computer (with the motherboard, to be precise) and not with the OS. That's why I said it wasn't a Win98 question.
"What type and how to config?" The only possible answer is: read the motherboard manual.
A little bit of background: a usual way to boot before installing an OS is from diskette (a:) using what's called an EBD (Emergency Boot Diskette), bootdisk or start diskette (all the same). You can get one from www.bootdisk.com, if you lost the one Windows 98 Setup advised you to make, and don't have a working system to do it now.
Windows XP, at least, is on a bootable CD, so you don't need anything else than a CD-drive (and, of course, a c:-drvie to put XP on).
Hope this helps (you don't tell why you ask the question).
Can a external hard disk be boot system (Install OS)?
What type and how to config?