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Exactly. Since everything is saved to your internal hard drive, if something were to happen to that internal hard drive, you would lose all of your data.
Saving a copy of your files to an external hard drive, like you suggested, would mean that you'd still have a copy of your important data in case something happens to the hard drive inside your computer. Think of it as a folder of all your most important papers that you keep at a friend's house -- if something were to happen to the documents at your house, you'd still have everything at your friend's house.
There are how-to videos available that will show you briefly how to copy files from your computer to an external drive. Alternatively, software such as Windows Live OneCare can back your data up to an external hard drive automatically.
Hope this helps!
