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I am making a user API Enabled. By turning ON the permission 'API Enabled'. What I am trying to figure out is, when this user is accessing data from salesforce with an external application.

Which sharing setting implies to it?

For Example, Internal OWD for contact is 'Controlled by parent' and External OWD is 'Private'.

So, if this user has access to the account. Will he be able to access contacts from the external call?

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External OWD is about access for Experience Cloud (aka Community) users. For example, if license of an integration user is Salesforce, it is an automatically an Internal user, and Internal OWD are applied.

Therefore it does not matter if user access information via UI or an API (external application) -- access level is defined based on user license type, profile, permission sets and sharing configuration.

More information can be found here (about difference between internal and external licenses):

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