How should I setup itunes?

I have all my MP3 files on my E:/Music folder

I've talked to a few friends, and when I asked what path I should use for Itunes Media Folder Location, they told me to make a seperate folder (Don't include my main music folder in itunes). Itunes is not my main media player, but I use it for itunes match on some of my music.

What is the best way to set up the itunes media folder location? Right now I have it set to D:\Itunes Media. That was based on a recommendation from a friend, not sure what it does. I assume it doesn't make 2 copies of my songs, because I don't want that.

When I add songs to itunes, I drag songs from my E:/music folder into my itunes library, and they itunes match goes to work. If I remove the check next to songs, they are removed from my list in my library (not sure why or where they went, the original copy is still in my music folder which is good)

Ami I not understanding something here?