Consolidating in iTunes once iTunes has been moved to external drive

Hi there,
I am hoping somebody will be able to advise me. I followed the instructions on this video:
https://www.youtube.com/watch?v=CbGmDJtQTGQ
to move my iTunes folder to an external hard drive so that I can free up space on my internal hard drive. I have also told iTunes in Preferences to look for the iTunes Media Folder location on my external hard drive:
Volumes/MacBook Air Backup Drive/iTunes/iTunes Media
iTunes now works when my external drive is connected to my laptop (and doesn't work if my external drive is *not* connected); all that is fine. I have now saved space on my internal drive by deleting the iTunes folder that was on my internal hard drive.
However, my Q is:
When I consolidate files in "Organise Library"-does this get saved onto my *internal* hard drive, and if yes, does it take up space? Does it matter that my iTunes library is now located on my *external* hard drive?
I'm not sure how consolidating will work now that my library is on my external drive, or does this not matter? Can I consolidate on my external hard drive or am I missing the point as to what consolidating means/does?
Many thanks!

Hey guys,
Yes, there is the portable library as well.  I worked with Kirk at Kirkville (Mac expert dude), and I basicallly had a portable setup, but he said the portable library left you open to functionality problems over time and I notiece that I didnt't get the "Script," dropdown menu in iTunes wihen it wasnt' set up like I suggested.  Also, from time to time you'd possibly lose files, run into sync issues.  He's a pretty knowledgable guy about iTunes, IMO he' the best but it's debatable, and he recommeneded highly leaving the library files on the local HD.
Initially I didn't have it set up this way, all my library files were in my external.  But I was starting to run into functionality, and like once a week I was having to locate a file or two and it was just a pain.  I"d try to delete or move the library file to the local, but they'd show back up on the external.  Finally, he had me delete iTunes, download it fresh and then all the library files were forced into the local drive. As I understand it, most of the "right way," "wrong way," descriptions of how to move your files to extternal follow this method.  I suppose it's personal preference though, if you're not having any problems. 
I like this way, because it functions just like it would on an HD.  Since my media is on an external anyway, if I ever need to move it, I can connect the new client or drive to the extternal wirelessly or cabled, and simply transfer them.  As long as the media is on an external, moving should be the easy part.
Psych, I'm going to suggest if you like, message me and I can help you via email.  Then I can forward my correspondence with Kirk, and you can see exactly what he suggested and walked me through.  You may have already done much of it, but it's a good failsafe, as after I was done with his help....man the files now work just like they would if all on local.
Those plist files should be on the local.  Did you look in your library?  Click on "Go," whle holding option.  You'll see library added in as an option (other ways to access, but i use this one).  Then go down to your ituens foflder and rummage around in there, see wha'ts all around. 
I just double checked my external, and the only library file I have there is the iTunes Music Library.xml. 
Psych, did you perhaps drag or copy your library initially, before realizing there was a "proper," way to move the library?  I ask this, because I did.....and it was the root of a ot of my problems.  I moved it all back, then used the prooper way, but it never fully worked properly until I uninstalled iTunes and reinstalled.  And hte big issue was teh library fiiles kept going to the external. What happens, is that iTunes is built to work with iMovies, preview, and many, many other applications that may use music or othher media.  Those apps don't know to look on the external, but will look in the user file, where their taught to find iTunes.  Having all the library files in the local, creates liek a "mirror," that tricks these apps into thinking they're accessing the media files, and functioning as if it was located llocally and not on external.  If library files aren't on local drive, then you're going to have problems. 
To be honest, what I thnk consoldiate does, is just organizing the files.  For example if you had a media file of all your music, but it was created manually, and eadch file was in the file loose.  "Consolidate," creates an "artist," file and then puts the songs in subfiles.  I think under artist is album befor song.  If your external is doing this....then it's consoldiating..  That's the best thing I can suggest to verify it andput your mind at east. 

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