Backing up the backup is never a great idea.
The reason is simple.. if the first backup is corrupt the second is as well.
You have explained the setup very well. Took several readings to pick up all the details.
Point 3 I have a question.
3 If my Time Machine goes down.............I've lost all the saved past files, etc.
I presume you are mixing up Time Machine.. backup software on the Mac and Time Capsule.. a hardware router with internal hard drive. And no if you make an archive of the TC now you have a backup record of your past files.. no need to have another backup.
So from there to the question.
4 Do I backup my Time Machine, and if so, how?
My reply is no.. if you mean continuous backup. For the very good reason that it is difficult to do.. Time Capsule has no built in incremental backup.. just a simple archive.. i.e. copy all files on the internal disk to USB drive. For a full 2TB drive this can take up to 24hours. And without incremental built in that means it never stops. Nor does the TC accept backups while archiving. So that is out. If you are worried the TC is going to die.. especially if purchased at the same time or earlier than 2013 iMac then yes.. it is definitely worth it because TC do die suddenly. And 5years is about the lifespan you can trust and even 3years is not unexpected.
The standard hard disk in the Mac is no better.
You could plug a USB into the TC and archive with your cloning software.. like Carbon Copy Cloner.. from the computer. The issue here is Time Machine sparse bundles probably cannot be copied as incremental and so you will end up copying the whole thing anyway. Not sure on that one.. I have not done it for reasons stated above.
Anyway it is going to be super slow because files must be copied via the computer.. and USB on the TC is SLOW. Like.. S--L--O--W. Every file is copied TC to computer.. Computer to TC.. TC to S--L--O--W USB.
5 Or do I create two Time Machine backups? What is the best way? Alternate days on two drives, or is there a way to create two Time Machine backups simultaneously on two drives?
Yes.. you can do this. I don't think it is needed if you moved all the current Sierra user files to the EHD for Catalina.
Time Machine supports multiple drives.. it will simply rotate them in order.
Can you clarify which OS you are talking about because this is getting complicated.
Sierra on the internal slow disk.. Catalina on an SSD I presume external drive. You don't need to keep backing up Sierra.. since it is not being used generally. You can leave Time Machine running on Sierra for if/when you boot from it. Backup to USB plugged into the TC could save you if the TC breaks down.
A simple archive of the TC onto the USB drive will work to preserve TM backup in case of total failure.. then wipe the TC drive and start afresh with Time Machine from Catalina. Nor do you need two Time Machine backups..
You could use a larger USB plugged into the TC as a second target.. partition it in two parts. One for archive and one for current backups from your Sierra and Catalina..
Note.. Time Machine is not especially reliable in Catalina.
Your practice of cloning is good.. so keep that up.
What cloner are you running? CCC can certainly maintain a store of incremental files.. not as neat as Time Machine but good enough for most people.
Reading back through this and trying to fix it is making it even more complicated.
I need guidance as to what you are really trying to achieve.
I seem to have recommended a stack of USB drives.. and have already said this is slow.. and yes it is slow.. but Time Machine incremental are small and even with slow backup it still will be fast enough.
There are several complexities here.. and backing up to local drive is still better arrangement.. much faster.. much more reliable.
As a btw.. I used Time Machine on a large external USB plugged into the computer.. this is partitioned to also take the CCC bootable clone. My experience with Time Machine reliability became such that I leave it turned off now.. so occasionally run it.. CCC (Carbon Copy Cloner) is now my main backup.