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In a closed circuit there is a potential drop due to resistance of wires and battery (internal).

Answer

When the circuit is closed, the resulting current not only flows through the external circuit, but through the source (battery, generator, transformer, etc.) itself. All sources have an internal resistance, which causes an internal voltage drop, slightly reducing the voltage across the terminals. The larger the current, the larger the internal voltage drop, and the lower the terminal voltage.

When the circuit is open, no current flows. So there is no internal voltage drop, and the full voltage appears across the source's terminals.

The 'open-circuit voltage' is actually the electromotive force provided by the source.

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