Keeping your iTunes collection on an external
The following assumes you want to keep all your iTunes music and movies on an external disk and ensure new music is always stored on the external drive.
First, you need to consolidate your iTunes Library to a folder you have chosen of the external drive.
Select the command consolidate library from the Advanced Menu. This will copy all your itunes media to the external folder and link the itunes library file to it
The files will now be on the external while the library.xml file (the index as it were) will still be in the Users > Me > Music folder of your mac.
If you want this file on the external as well as well, copy it to external iTunes folder, start itunes with the alt key pressed and you will have the option to select the library file now on the external
Select the library file you just copied and now both your music and the library are on the external
You can now delete the old Itunes folder off your mac
You can also use the choose library dialogue to switch between a large music collection on the external and a smaller music folder on the mac if you wish