Weaselboy said I need to make the partition the same size as the internal drive.
1. Does it need to be exact to the byte?
I only said that so the partition would be large enough so if you add more data to the drive it would fit should you update the clone, but no... for now it only needs to be large enough to fit the data on the source drive.
2. This image will then take up 250 gigs to image the drive even though almost all of it is free space. Now I am thinking of adding my data, so that that I will get better use of the 250 gig image. As long as it's going to take up all that space it might as well have my data in the image too right?
That's what I would do.
What format should I use? I hear there is one the mac can format in that can be read by a PC.
For the clone and TM backup both it will require Mac OS Extended format to work.
Both the MS-DOS (FAT) and ExFAT file formats available in Disk Utility are read/write both on Mac and PC if you want to use that to move some data back and forth.
I picked up a WD my passport ultra 2tb USB 2.0/3.0 for my Imac. I intend to make a partition for the image, and the rest for time machine backups. Is there any other reason to make more partitions?
Only if you want to use the drive to store some other files on there.
I'm reading about time machine on the Apple site. I think maybe I don't need an image in a partition. Maybe I can just give the whole drive to time machine.
Yes you can and you can use that to completely restore to a new drive if your internal drive dies. You would pop in a new drive then option key boot to the TM disk. That takes you to a recovery screen where you use Disk Utility to format the new drive then click resort to put everything back on he new drive... OS and all.
The only advantage to the "clone" route is you can actually boot to that disk and operate the computer, where the TM restore disk actually needs a new disk to restore to to use the machine again.