I've been contacted twice recently by teachers running out of hard drive space on their Mac. The teachers are being good stewards of public resources and have used their laptops to their fullest potential! Unfortunately, when the hard drive is under ten gigabytes of space left, it's time to archive content off, as performance will take a hit in many applications with this little space left.
External hard disks are great in this circumstance. First, they can be used to back up data. This can be as simple a process as connecting via USB or FireWire and dragging and dropping the Documents folder, Music Folder, Movies Folder, etc onto a dated folder on the external drive. I suggest a dated folder because it's a visual reminder of when you last backed up (in the initial rollout training for teacher laptops, we suggested doing this with a burn folder). It can be as complicated as using a program such as Carbon Copy Cloner to completely clone your internal hard drive to an external device. (The software is easy to use and is free for educators.)
Another use for an external drive besides archiving and backup is for an alternate iTunes or iPhoto library. Here's a link to information on how to set up a move of your iTunes library: http://support.apple.com/kb/HT1449
It's possible to have more than one iTunes library: http://lifehacker.com/software/itunes/multiple-libraries-in-itunes-7-202302.php
I am very hesitant to recommend either of these procedures, as I believe it would corrupt your iTunes library if the hard drive it's located on were accidentally disconnected.
I'm happy to help if you want to consider anything mentioned here!

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