So i've always heard that they only look at your ranks as every school has different assessments and it would not be fair to judge based on internal marks. Is this true?
No, this is incorrect. They use your raw internal marks, not your ranks, to determine your moderated assessment marks. However, they don't really use the individual figure, they consider the gaps between each student. It is more fair to judge using internal marks as it has the ability to look at students in relation to each other. That is, you might be ranked 10th out of 40. That probably seems good. But if you look at your raw internal marks, rank 1 to 9 achieved from 90% down to 85%, 10th (you) achieved 60%, and from 11 to 40, the marks range from 59% down to 50%. Now, does 10th really mean you're as good as 9th? You're only 1 rank away? Well, no, probably not. So that's why looking at the gaps of the raw internal marks is superior to looking at ranks.
Also, they determine your moderated assessment mark by determining the mean of your internal marks and equate that to the mean of the HSC exam marks your cohort achieved. The range of moderated assessment marks will be from the highest HSC exam mark down to the lowest HSC exam mark (usually). All your cohort's moderated assessment marks will be within this range.
My 4u class is only 3 people so does that mean that the only exam that'll affect us will be the HSC itself as even if you're coming last you get your external mark as your internal (apparently)?
No. BOS will look at the mean of your internal marks and the mean of your HSC exam marks. Essentially, first place will get the highest exam mark for their moderated assessment mark, last will get the lowest exam mark for their moderated assessment mark, and second will get a mark which is proportional to their school performance. Now, it could be that last place gets the highest exam mark; they will obviously keep their own mark for their HSC exam mark - this can't change. First place could just as easily get the lowest HSC exam mark, but they still keep that mark.