Put the thermostat probe where you want to control the temperature.

If you want to control the temperature where the snake is sitting, and make sure that where the snake is sitting is not getting too hot, then put it inside the tank, where the snake can get the closest to the heat source.

If you put it outside of the tank, make sure you are using a thermometer inside the tank to measure the temperatures accurately; if it's a glass enclosure, the heat will not transfer perfectly through the glass, so inside the cage will be colder than where the pad is touching the glass directly outside.

Think of it this way: Do you put the thermostat for your house next to the AC vent, where the cold air first comes out? No, you put it in the living room (or someplace nearby) where the people are actually living, as that's where you want the temperature to be within a certain range. Right next to the vent it will be colder, yes, but if the thermostat was there, your house wouldn't get cold enough, right? Same thing for the thermostat with your snake cage - put the thermostat where the snake will be, not necessarily right next to the heat source.

-Jen