OK, I'm a little stumped here. When I open Time Capsule, the "Search For" section is grayed out so I can't press "all images" and when I open my home folder and press pictures, only the iPhoto icon comes up. If I click on it, it's just the icon. WHere are my pictures being backed up to? This is one of the sole reasons I got time capsule.
It's a little unclear what you are talking about. You presumably got Time Capsule to use as a backup disk for Time Machine. In order to access the backups you need to invoke Time Machine. Is this what you are doing? If you want to recover photos from iPhoto the simplest way is to open iPhoto and then either Enter Time Machine off its menu or choose Browse Backups from the file menu in iPhoto.
If the pictures you want to look at are somewhere other than iPhoto then open that location on your boot disk and then enter Time Machine (Time Capsule must be connected to your system and its sparse bundle mounted for any of these things to work of course).
Sorry if I was unclear. The grand question is how come I can't access pictures in Time Machine just like movies or anything else? Why do I have to get back ups through iPhoto? What if iPhoto becomes dysfunctional - how would I recover my pictures?
If you use iPhoto then it’s the iPhoto Library that is backed up, and the correct way to restore is via the File -> Show back ups option or simply to restore the entire iPhoto Library.
That said, you can access the actual photo files in the back ups by right clicking on the iPhoto Library and going ‘Show Package Contents’.
Standard warning
Don't change anything in the iPhoto Library Folder via the Finder or any other application. iPhoto depends on the
structure as well as the
contents of this folder. Moving things, renaming things or otherwise making changes will prevent iPhoto from working and could even cause you to damage or lose your photos.