Usually Time Machine dedicates the entire drive for backups, however you could always re-format the drive and partition it using Disk Utility. This allows you to split the hard drive into two different partitions (think of it as "sections"). You can choose how big you want each partition to be. Then Time Machine will dedicate itself to one partition, and you can use the other partition for anything else.
You don't have to partition the drive to store other files in addition to the Time Machine backup. Time Machine will simply continue using available space until it starts to dwindle then start deleting the oldest backup. Having said that it's probably best to partition the drive as one means of controlling the size of the Time machine backup.
Although you can partition the drive as Slydude pointed out, or just leave it as one partition, I personally do not recommend using an external drive in that manner. I know it's tempting with today's very large hard drives being so inexpensive, but when trouble occurs with an external, it just makes the problem worse if the drive has both your TM backups and other data.
A quick look at some posts today about this very subject could help you decide.
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