The downside, of course, is needing to plug in the drive whenever you want to access the files, but that’s part of the setup here.
The most important point to keep in mind is that once a media file is listed in the i Tunes library, it is referenced by i Tunes by the specific location (ie, full pathname) of where this file is located.
(User Home Folder/Music/i Tunes/i Tunes Music.) The next two check boxes represent the organizational methods of the i Tunes library.
If you choose to “Keep i Tunes Music folder organized” it will automatically organize your music into the proper artist / album folder structure.
i Tunes doesn’t make it entirely easy to change the location of your media or set it up to share between computers.
Many people struggle with duplicate files, or with i Tunes being unable to find the location of your music after moving it around.