How do I set up my external HD?

I've just received my Western Digital "My Book" external hard drive. I plugged it in and the first thing it asked me was if I'd like to use it with Time Machine. I clicked "decide later", because I'm not exactly sure. The thing is, I WOULD like to use the external HD with Time Machine, but I'd also like to use it to just put stuff on it, which I don't want to have on my computer. In fact, I would like to copy everything I have so far to this external HD, and reinstall my OS completely.
So, do I need to partition the drive or something? Or will it create a "Time Machine" folder, and I can just create another folder to put stuff in?
The external HD also came with a program. I haven't installed it, but if I use Time Machine I won't need this, right?
Thanks guys

But two drives can fail as well
And thanks! Should I setup Time Machine first, or partition the drive first? If I partition the drive first, will I later have an option to choose which partition Time Machine should use?

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