I assume the USB drive would need to be at least the size of the Time Capsule or greater?
Yes, if you are planning to copy (archive) all of the data on the Time Capsule drive over to the USB drive....and then erase the Time Capsule drive and start a new backup to the Time Capsule drive.
If you don't want to copy over the data on the Time Capsule drive to the USB drive, and instead plan to use the USB drive for future backups, then you would likely want a larger USB drive.....4 TB or larger....for backups.
Few of us ever need to go back and pick up a file from months or even years back in the past, but users seem to have a difficult time erasing their backups and starting over again.
My neighbor has backups going back almost 4 years. He knows that he'll never use or need them, but he just can bring himself to erasing the drive and starting over. Instead, he just keeps adding new drives for more backups.
But, a person could maintain set of a USB drives on a regular basis, I guess, too.
Not sure how this would relate to a Time Capsule, but if you are saying that you could back up your Mac to a USB drive that is connected directly to the Mac, that would be true. Backups this way are faster and more reliable than backups to a Time Capsule.