Hi Janet. My apologies for not seeing this sooner. I will address your questions back to front!
You have data backed up and your original Windows 7 disk, in the event of a failure, you would also need any software disks that you had used, eg Office.
A system image is a good idea, although I have not been able to restore an image using the Microsoft imaging function. I use a 3rd party imaging application called Easus Todo Backup.
It appears that there is plenty of room on your USB hard disk, however, you need to check what file system it is formatted to. If it is FAT, that format can only hold files up to 4GB, which might be what your backup is complaining about, so you would need to get a new disk. If it is formatted NTFS, I don't see what the problem is. To see what the format is, right click on the disk in Windows Explorer and choose Properties.
