An external hard drive will work well for what you are tying to do. Your username suggest you are into photography. You should always have some sort of back up for your digital pictures. If the only place you have them is on your main drive then if something happened you would be in big trouble
As far as your speed goes, what do you mean by it's "slowed down"? Are we talking boot times, file access, a specific program, etc. etc.? You really shouldn't be seeing much slow down, if any, based on hard drive capacity until you have almost completely filled the drive (less than 10% capacity available). Macs are fairly optimized out of the box and the conventional PC suggestions (defrag your hard drive, etc.) are not solutions. If we are talking about iPhoto being a little slower because you are sorting through 250 GB's of pics then that could be a result of how you are storing them in folders, subdirectories, etc. etc. Everyone has their own workflow and storage preferences. Maybe if you gave us a litte more detail about the specific slow down's you are seeing then we could better help or advise you.