"I just put the movie files themselves on the external and ⌥+Drag the movies into iTunes. This way, the movies show in iTunes, but are stored on the external."
With a lot of people turning to laptops with the SSD option, a concern about storage space and managing it becomes a reality. A lot of users, like myself, like iTunes to manage both their music and movies. However some might not want to use up their precious SSD space on movies and would rather have them on their external drive.
Using the tip that Asphyxiat3d has mentioned will allow you to keep the music on your local drive while keeping the movies in your larger external drive.