Problems with library stored on external hard drive

I have a lot more music than I want to keep on my computer. (An iPod classic full - nearly 150 gb.) It is a mix of music that I bought from the iTunes store and that I downloaded from CDs that I already owned. I recently backed up (using iTunes to do it) the iPod to an external hard drive that I want to be able to use as the library for iTunes on my computer. I have changed the library location in Preferences / Advanced and iTunes says that it is recognizing the hard drive as the location of the library. But, in iTunes, the only music that shows up is what seems to be stored in the cloud - about 32 gb of my total music library. I can't get iTunes to find the rest of my music.

I have tried a variety of solutions, attempting to follow the instructions in the iTunes help, but nothing has worked. Could someone explain to me - in the simplest possible, step by step as if talking to a complete and utter idiot terms - what I can do to accomplish this supposedly simple task.

Thanks,

Eric