I have read that the sources for the scripts are stored outside of the ESP file... Does this include Code fragments (The ones in Quests: Papayrus Fragments) as well? I am quite scared to start scripting for fear of changing something peramently...

Compiled scripts are in one of the BSA files (Misc?), although scripts that you compile yourself will be placed inside your Data/Scripts/ directory.

Fragments are also stored externally, yes.

Cipscis

Ok so If I were to altar a code fragment in a quest... It would not be Mod specific and may altar gameplay outside of my mod... Correct? (Double Checking)

If this is the case, How do I change things without having to go back and change literally hundreds of forms to use my new script? Sounds extremely stupid to me if this is the case.