How Can I Keep Music on an External Drive?

I've dealt with this issue before and asked questions about it, but I STILL don't understand how iTunes works when it comes to its "Library" "Media Folder" etc.
Can anyone break it down for me exactly how it all works? Is there a good resource to explain it?
The basic problem I have is the same one that many people have: I keep my actual music on an external hard drive. However, if I launch iTunes when that hard drive isn't plugged in, iTunes somehow changes so that all my music vanishes no matter what I do. Plugging in my hard drive doesn't help. iTunes has created a new Library that contains a list of all my music but with no idea where that music is. I try to tell iTunes where that music is, but nothing works.
You'd think an easy fix would be to always plug in the hard drive first. However, even that doesn't help. iTunes will sometimes not see that hard drive when it is plugged in, and I have no way to predict when it sees the drive and when it doesn't. I start adding new music or podcasts, and it might all be being added to some new library iTunes created and I'm totally lost once again.
On the Preferences/Advanced tab there is the option to change your Media Folder location, but that doesn't work. My music is on the external hard drive, but there is no Media Folder there. The iTunes Media Folder is here: My Documents\My Music\iTunes\iTunes Media
I've read that you can hold down the Shift key when you launch iTunes and then you get the option to "Choose Library" or "Create Library." The idea is that iTunes has created a new empty Library and that you just have to select your old Library to get things back to normal. However, there is only ever one Library file listed. There is no new one and old one to select from. There is no Library file on the external drive, either. So I have no idea what I'm looking for.
If I choose "Create Library", it then asks me for a "Folder name". I don't know what that is, either. I thought I'd just have to give my new Library a name. The more I try to deal with this issue, the more confused I get.
To further muddy the waters, under the "General" tab on the iTunes preferences page, it lists my library as "Doug's Library", the name I gave it long ago. However, the option to choose "Doug's Library" never comes up. I've never seen a file with that name or a Library with that name. So what is that all about?
I've used Windows Explorer to go into the iTunes folder to see what files are there, and then it gets more confusing. There is a file called "iTunes Library" and a second file called "iTunes Music Library." Why does the music have a second Library file?
Any suggestions or guidance? There has to be a way to cut through all this confusion. I've had so many problems with iTunes along these lines that I've literally stopped using it to listen to music. It's just not worth the hassle. I spend far more hours trying "fix" iTunes than listening to music with it.
Thanks to anyone who can point me in the right direction.
Doug

I do the same thing as you do...
My music is on an external drive as to not use up gigabytes of storage that need not be used for media.
There are a couple basic principles to iTunes that I believe you should know.
1. iTunes is not a media storage program. It does not store your media "in iTunes". It simply is an organization tool for your media already on a hard disk.
2. As iTunes is not a storage mechanism, it has no way to "know" whether or not the media that is listed is actually there. This is where the "design" of iTunes comes into play.
I like to think of iTunes as a bread-crumb trail. The "music" in iTunes, isn't actually there. The bread crumb is the location on the external hard drive.
If that bread crumb trail disappears (in this case the external drive you use). If said external drive is not plugged in, that bread crumb trail is not able to be followed. iTunes is "lost" and unable to find the media. The only way to remedy this is to place the media on your local drive.
To address your issue of the library. If you hold down shift, you can select your library on your external drive. It will be a file with an .itl extension. The folder name will be your external drive.
I go into edit > preferences > advanced and set my library to the correct location. Make sure you check the box "Copy to iTunes Folder when importing" (or whatever it says).
You can't fix the issue of iTunes not seeing the media if your drive is unplugged unless you physically move the content to your OS HDD...Or any other HDD you use.

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