If your external drive isn't already connected to your computer, connect it now.

Click the Select Backup Disk button and select your external drive.

The selector should list any storage drives connected to your computer. If you don't see the drive you want, make sure it shows up in Finder, and try disconnecting and reconnecting it.

Unless the storage drive you selected is already being used as a Time Machine backup, Time Machine will erase everything on it before creating the first backup.