that iTunes is pointing at the external drive as the location of the iTunes folder/Library.
As you didn't feel it necessary to tell us what OS you are using, or what version of iTunes, help stops until we have that information.
i recently discovered that my itunes library was being backed up on my laptop...as well as being stored on my 1 Terrabyte external hard drive. Is it possible to delete/remove the files from the laptop without affecting my real library? The last time i tried to delete or remove files from itunes and didn't look up the file path...itunes could not locate the file(s). My itunes library is 260gig...and my laptop hard drive is 320gig...so something has to be removed soon.