for use with Time Machine an external drive has to be formatted to Mac OS Extended Journaled (HFS+).
after youve formatted it Time Machine will ask you if you want to use it as a Backup disk and format it to HFS+ again and then start the initial backup.
so if youve already got files on your HFS+ formatted drive you should move them as Time Machine will erase the drive. you can then move the files back to the external after the initial backup. Time Machine backups are stored in Backup.backupdb on the external.