It mostly behaves as expected but I did find one weird bug. So I ran a few tests to verify the behavior.
Unfortunately, there isn't good documentation on how exactly syncing an external drive behaves and answers on Google Product Forums aren't always complete and comprehensive. I wanted to be 100% sure how exactly it will play out because I'm not taking chances with my photos and videos. The folder can be on an external drive too but the challenge is that I normally don't keep the disk connected at all times. Google Drive allows you to sync a folder outside the main Google Drive folder. As much I trust Google, I still want to keep a local copy of all of my files and I want it to seamlessly sync with the cloud. I now have more data in Google Drive than can fit into my Mac's 500 GB of built-in storage.
It's not well documented, so I run a few tests to understand how exactly Google Drive works with external disks. How Google Drive works with external disks