In many cities streets are congested -- inconveniently, and, perhaps, inefficiently. This inefficient congestion is itself a result of an externality. The cost of congestion is (mostly) external to the car commuter, and so he does not take it adequately into account, and too much resources are allocated to car commuting. But this is not what we are directly concerned with.
On the other side of it, when a commuter chooses public transportation instead of a private car, that choice decreases congestion. One less car, a bit less congestion -- but the benefit of the decrease in congestion goes to the commuters who continue to use their cars, not to the public transportation commuter. The benefit of decreased street congestion is an external benefit, from the point of view of the public transportation commuter.
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