Yes. Boot from the USB installer, select your external SSD as the destination, and the DMG contents will install perfectly.
diskutil unmountDisk /dev/diskN
The most straightforward way to download the macOS Catalina 10.15.7 DMG file is directly from Apple. Here's how: Download Macos Catalina 10.15.7 Dmg File
Last updated: [Current Date]. Always verify your download checksums against Apple’s official release notes for Catalina 10.15.7 (Build 19H2 or 19H15). Yes. Boot from the USB installer