Can you help a Mac Newbie with setup on TimeMachine?

I have an external hard drive wirelessly connected through my router, my mac can see it, but when i try through preferences to share it, then it cannot see it, but my finder sees the drive and accesses it without problems.

Anyway..

when i start up time machine, it allows me to "select disk" but it does not see the external hard drive connected to my router.

What is the problem, why can my mac use this drive but TimeMachine does not see it?