Store anything you want from your PC, acts as a backup to your files and folders. If your PC's internal hard-drive fails you will still have a copy of your personal stuff if you have saved a copy on the external hard-drive.
I often overhear people in the repair side of PC World being told their PC is damaged, and they are charged £90 for data recovery. What do you have for a back up of your music, photos etc if your HD fails? A USB HD is one way of backing up such things. Do post back if you want advice on back ups as shops, in my view rarely give such advice.
An external hard drive on a computer is like a trailer hooked on the back of a car - you use it for extra luggage storage for your stuff. Or you can copy your stuff to it so that you have a backup copy.
Like a trailer attached to a car, an external hard drive does not have an engine (operating system W7 XP etc)installed on it. Although it may come with a backup program to make backing up easier it is not necessary to use the backup program in order to copy or put your stuff on it.
lotvic - that is a really good explanation. The only things that I would add is that some come with their own power supply and others use the USB power. For use with a desktop then I would go with a hard rive with its own power supply.
'Out of the box', if you don't change anything, your PC will, by default, store all your files - documents, photos, music and so on - on your internal hard drive (normally your C: drive).
The problem is, that's the same drive that your operating system and all your system files are on. If something goes wrong with your PC, one big possibility is that someone will have to erase all the information on that drive - operating system, system files, photos, documents and everything - in order to be able to fix it (to reinstall the operating system).
So, you have two choices. One, as the guys have implied, is that you continue to save all your files on that internal drive - but ensure you copy all your files on a regular basis to an external hard drive. That way, if things go badly wrong, you haven't lost all your personal stuff.
Another approach, which is the one I favour, is to set your system to automatically save all your user files to the external drive, not the internal drive. The advantage of this is that it makes backing up your files slightly less critical.
On the other hand, you should never - EVER - have only one copy of your files. For that reason, I set my external hard disk to back itself up automagically to another external hard disk so that I always have two copies of every file.
And, because I'm paranoid, every month or so I back up my backup to a third external drive which I keep somewhere else.
That's right - I get birthday cards from Iomega, Western Digital, LaCie, Buffalo... :-)