Coursework is basically a piece of work, that is not an exam but will count towards your final grade. You do them during the year, as opposed to a terminal exam at the end of a course. For most arts subjects, it tends to be an essay; for sciences it's a writeup for an investigation (and there are other types, which differs from subject to subject and from board to board). For some subjects, you can substitute the coursework component with an extra exam paper (History, for example).
Usually, coursework has to be something under a certain criteria that the exam board had set. Then (I think) it's up to the individual school & teachers for the specific titles, due dates, length, etc. Your teacher marks it, then it gets sent off to the exam board to be moderated (to see if your teacher marked it too harshly/leniently). Sometimes, some schools have internal moderation between different teachers as well.
If you're an external candidate, I'm not sure if you can do coursework - you might have to do an extra paper. If you are allowed to, you'd probably get it marked by a tutor or an external moderator...
Personally, I prefer coursework to exams, because I have time to think about it (in exams, I do tend to run out of time or panic because I can't think through it in enough depth). You can use any resource you can find, although technically you're meant to have a bibliography in the end.