Using an External Hard Drive and a Portable Computer
Once you have consolidated your library content onto an external hard drive, iTunes will continue to use that location for any newly imported or downloaded content, subject to your iTunes preference settings.
However, this creates an additional consideration for users of portable computers, since the external hard drive may not always be available. Fortunately, iTunes actually works around this quite well, so theres no need to pack up the external hard drive when going out with your laptop.
Basically, when you start iTunes with your external drive disconnected, the iTunes Media folder path will temporarily revert to its default location on your local hard drive. This allows iTunes to run properly, although obviously you will not have access to any of the content thats not already in that location. You will get broken links to any files that you try to access, since the external hard drive is not present. No need to worry, however, as this will correct itself once the drive is available again.
However, this does allow you to download new content (ie, import CDs, add files to your library, download podcast episodes, purchase content from the iTunes Store, etc). This new content will be saved in your local iTunes Media folder, and will be playable from there.
You can even sync your iPod (or iPhone) to your library in this state. Missing tracks (those with the exclamation marks beside them) will remain on the iPod, since they are still listed in the library. You obviously wont be able to add content to your iPod that isnt already there, but you could certainly sync any new content youve added while disconnected, since those files do exist on your laptop computer. Further, even ratings and playcounts will be updated in the iTunes library during an automatic sync.
This can be a useful way to import a few tracks off a new CD when youre away from home and get them loaded onto your iPod without having to wait until you get home or having to resort to switching your iPod to manual mode.
Once you do return back home and plug the external hard drive back in, you simply need to restart iTunes and it will detect that its proper iTunes Media folder has returned, and go back to using that as its iTunes Media folder path. Any content youve downloaded or imported while you were away from the main library storage area can be transferred over simply by running the Consolidate Files option to copy those files over.
The way that iTunes handles this provides a very effective way to maintain a large iTunes library that is somewhat usable on the go without having to keep it all on your laptops internal hard drive.