You can play your old Xbox One games from an external drive but next gen S/X Series games require inbuilt storage which the Series S has a very low amount of storage for a next gen console.

To expand your storage of the series S it costs £200 for 1TB which almost puts you at the Series X price range so it’s better to just go for the X from the start. It would be better if Microsoft allowed you to do use any storage rather than their official ones like with the PS5 because it would be way cheaper but that’s just how it is unfortunately.