Fragmentation occurs in a dynamic memory allocation system when many of the free blocks are too small to satisfy any request. There are two types of fragmentation which can occur -
External Fragmentation: External Fragmentation happens when a dynamic memory allocation algorithm allocates some memory and a small piece is left over that cannot be effectively used. If too much external fragmentation occurs, the amount of usable memory is drastically reduced. Total memory space exists to satisfy a request, but it is not contiguous.
Internal Fragmentation: Internal fragmentation is the space wasted inside of allocated memory blocks because of restriction on the allowed sizes of allocated blocks. Allocated memory may be slightly larger than requested memory; this size difference is memory internal to a partition, but not being used.