razormac I am such a newbie that I don't think I even set up my time machine yet. For a month old Mac how long do you think it will take to backup. I have just a couple files and photos on it now.
Also will it hurt using it as an external HD? I don't think I will ever need 1 TB let alone two so I was hoping to get the most out of it.
The first backup, if you have anyway to do so is best done with a direct connection to the Time Capsule--ethernet cable simply because of speed. From my experience this can take (depending on what you have on your drive) from several hours to more than a day.
If you are only backing up the one Mac, 1 TB probably would suffice and give you extra space for storage for some time. I have 500 GB Time Capsule and my wife and I filled it in about 3 months.
Filling the drive on your Time Capsule means that older backups will be overwritten. If this isn't an issue with you then not a problem.
Honestly, again, you have a desktop Mac (iMac if I remember correctly). In that situation I would (and do) use small and cheap portable USB HDs for my Time Machine Backup. I use two drives and keep one in a safe deposit box so if the unthinkable occurs I won't lose a lifetime of photos and other important files.
Drives like this are small, unobtrusive and can be left plugged in.
This is just my personal opinion and preference. I would use the Time Capsule for network storage and keep my backups on another drive, but that's just me. Certainly no problem with using it the way you intended to.