It is a backup device.. in fact it is a backup device for wireless clients in particular hence it is a wireless router with a hard disk inside.. if you use it for storage.. it has one or two big weaknesses..
It is slow.. cf a real NAS with raid.. a single slow green drive is plenty for backups.. less than adequate for storage.. fine over wireless of course.. lousy if you are trying to pass big files.. like your iphoto library back and forth.
But the biggie.. IMHO.. no backup.. the TC has no way to back itself up.. and TM cannot include the content of the TC in a backup to another location.. TM cannot backup any network drive.
So your files will be stored on one bottom of the market, cheapest possible drive available.. with no backup.. !!
Time Machine and data files may also not so happily co-exist.. the TC cannot be partitioned (well not internally).
You can create data images... but is this a good idea??
Read a bit of pondini.
http://pondini.org/TM/Time_Capsule.html
Q3