This used to be a general word for `lavatory' or `toilet' but was used
especially for a shed or hut, separate from the house, which contained
seats over an earth closet, or sometimes a
water closet. Modern dictionaries say privy is an Amercian word for
an outside lavatory, but according to the OED, the word privy is 600 years
old, and means a private place of ease, a latrine, a necessary; hence privy
house and privy stool.
A privy was the normal lavatory in Britain for people living not only in
the country, but in industrial towns, until the first half of the twentieth
century; it was often at the bottom of the short garden, and was called by
various names---`netty' in the north-east [of England]
and `cludgie' in Glasgow.