Trying erase and re-install O SX

Question

i am having trouble erasing my iMac 27" O SX  TO DO A CLEAN RE- install. I am at this point, I selected the Macintosh HD and erased it, but from that point I got confused because I cannot continue with the instructions. Also, my 1 TB backup still shows up on the left even though I have it disconnected. The OS X BASE SYSTEM  is still on the left and I cannot continue by clicking Disk Utility and closing like the instructions say to do.

Answer 1

Your install disk is Snow leopard. You will need this if you wish to sell the Mac. Why? Because you cannot legally sell it with the latest downloaded OS version because that license is tied to your Apple ID forever and would cause major problems for the buyer. The license for any OS obtained at the app store is not transferable.
Another reason to have it: in case you have a borked system and wish to start over/reinstall.
Recovery cannot download the original OS version because your never was available via download, only on disks.
Regular recovery (Command + R) will reinstall the current OS version on top of what you have.
Internet Recovery (Command + Option + R) will reinstall the original OS version except machines that came with Snow Leopard or earlier (see above); on those machines, internet recovery is not reliable as it may install Lion or nothing at all.
As for your backup: the best is to use Setup Assistant when you first set it up. That is only offered at that point. You can now use Migration Assistant, but it will create a second user (because you've already set one up) and it becomes a pain getting rid of the duplicates. I won't use it again. Not knowing what kind of backup you have, I can't make further suggestions. If it's just user files, pics, videos, you can probably copy/drag them over.
Lastly and FWIW, the mid 2010's were the last machines that came with physical media/install disks. Right after that, the switch was made to digital download only and the license restrictions became even more confusing.