Regarding dates and having multiple copies of your data and not getting confused:
Make a folder on the new external drive. Name it Patti-backup-092911. That stands for Sept 29, 2011.
Make a new copy and paste from your user folder to this new folder. That way you know what date it was made.
If you want to make another backup tomorrow, make a new folder on the external drive called 093011, for September 30, 2011. Then copy to that folder.
Confirm to your own satisfaction that you can go directly to the external drive folder and find and open a backed up file--such as your Excel tax info file. Just as you can open the original version on the C drive user folder.
It's up to you to decide how long to keep any particular backup folder. You have plenty of space, so you may as well keep several dates.
How often you should backup depends on how often your data changes--how often you make new files or change old files in your user folder. Most people do it at least once a week.
You can eventually graduate to using software to make the process easier, but I wouldn't worry about that now. Just do the copy and paste periodically.
Regarding your issue with System Restore, I would start a new topic in the "Backup and Restore" section of this forum.