Oh, so even though I may never use nearly 500 GB, if my hard drive fails, I will be able to replace the whole 500GB of space if I have at least that much in my external drive? If so, then that makes sense.
Initially the size of a Time Machine backup will be smaller than the space occupied on the drive you are backing up. However, over time as files are changed and modified the size of the backup set will grow until it eventually completely fills the Time Machine drive at which point Time Machine will start dropping the oldest files or versions of files off of the drive. How long this will take depends on:
- The size of the changed files (a few very large files that change frequently can fill the Time Machine drive very quickly.
- how volitile the files on your system are. Every time a file is modified it gets backed up, or at least if the file has changed within the past hour it gets backed up
- NOTE: frequently changing system files such as swap files, are automatically exempted from a Time Machine backup.
- In general, Time Machine backups are pretty efficient in the use of disk space.
So if your drive fails you will be able to restore from the last backup before the drive failed (generally one hour or less before the failure) or you can go back in time your system's history, even back to a previous version or update of the operating system. More commonly, if you accidentally delete a file, or somehow a file becomes damaged, you can go back hours, days, months of even years to recover it.
