CD-RW stands for CD rewritable. Just as you would to your hard drive or a floppy disc. Programs, images and text files are all candidates. You can even create audio CDs. And to sweeten the pot, audio CD-R discs will play on your stereo.
Storage capacity varies slightly from brand to brand.
A rule of thumb is that you will be able to store between 600 and 650 Megabytes. Audio CD capacity is about 74 minutes. I recommend you purchase an internal drive. If you are a novice, I also recommend you have it installed by a professional technician and preferable at home with all your other peripherals attached to your computer. A professional technician will insure that the device is installed correctly and the software and the hardware are working in harmony.