Hi :0)
I got an external hard drive because I have so much music that my laptop memory just wasn't large enough to store it. It's much better than juggling discs and labelling them all up properly.
I can't answer question 1 for you, I'm sure some more technical minded people would disagree that it's the best way to back up but it's the best way for me anyway.
When I was searching for an external hard drive, there was nothing stipulating that it was only good for desktops or laptops, so I guess so.
No software was needed for my EHD, just the USB that came with it. It's just like using your hard drive - but with loads more memory.