you grab the itunes music folder, drag it over to the external. i then clear out the library... then i drag and drop it into the itunes library. then go into the preferences in itunes, and select the new location for the music folder
why would you want to do this because once you access the music on the external drive itunes will copy the music from the external to the internal drive again
itunes will NOT copy it back into the internal if in your preferences you change the location of the drive. so anything you add to the library will get added to the "itunes folder" on the external.
not anymore with the latest update that is comming out to support apples new tv service that option will be disabled because to many people are redistributing music from itunes illegally