updating a records using external Id in Apex

You need to use the external if in the update call

upsert flist Externald__c;

For part two of your question, seeing that you want to relate the parent and child foo records you can t do it the way you were trying but I also think that you need to create the parent separately, however I think you either need to build a map to successfully relate the parent back to the child or have a process builder/flow do the parent mapping for you to relate the parent to the child accurately something like this:

List<Product2> products = [SELECT Name,PrdExternalId,Product__r.PrdExternalId FROM Product2 WHERE Warehouse_SKU__c!=Null];
    system.debug('Product list ********* ' + products);
        List<Foo__c> flist = new List<foo__c>();
        Map<String, Foo__c> parentfMap = new Map<String, foo__c>();
        for(Product2 p : products){
            foo__c f = new foo__C();
            f.Externald__c = p.PrdExternalId;
            f.Name = p.Name;
            if(!parentfMap.containsKey(p.PrdExternalId)){
                parentfMap.put(p.PrdExternalId, new Foo__c(Externald__c = p.Product__r.PrdExternalId))
            }

            flist.add(f);
            }
        upsert parentfMap.values() Externald__c; 
        for(Foo__c f : flist){
           f.foo__c = parentfMap.get(f.Externald__c).Id;
        }
        upsert flist Externald__c;

In theory that should work or be close to what you want to do

You have to specify the field which you want to use an external id.

So your syntax will be

upsert flist Externald__c;

You can even use Database methods

Database.upsert(flist , foo__c.Externald__c, true);

That being said, You cannot do

f.foo__r.Externald__c = p.Product__r.PrdExternalId;

As foo__r does not exist, foo__r would only exist when you query it.(Few exceptions lies). You have recrate a new Foo__C for parent to do your dml.

for(Product2 p : products){
    foo__c f = new foo__C();
    f.Externald__c = p.PrdExternalId;
    f.Name = p.Name;
    Foo__c parentFoo=new Foo__c();
    parentFoo.Externald__c = p.Product__r.PrdExternalId; 

    flist.add(f);
    flist.add(parentFoo);

}


 upsert flist Externald__c;