I understand I can't use time machine and use it as an HD.
While it is recommended that you use the Time Capsule only for Time Machine backups, you can use the Time Capsule simultaneously as a network hard drive as well.
but I can't figure out how to set it up as a HD
On a Mac, open any Finder window and look for the Time Capsule icon under the Shared heading on the left panel of the window.
Click on the Time Capsule icon
A folder named "Data"....unless you have changed the name of the Time Capsule hard drive.....will appear to the right, which represents the hard drive
Double-click on Data to mount the drive on the Mac's desktop. You may be asked for the Time Capsule device password when you do this
Once Data appears on the desktop, you can drag/drop or copy/paste information to the drive, just as you would any other drive icon