Hi, Fritz Lang1,
I have several iMovie libraries and I run all of them off of an external drive. Double click on the library's icon and iMovie will open in that library. The iMovie app itself I keep on my internal drive. The iMovie app will refer to whatever external drive library that you open it in.
Videos take up a lot of space, so most people who work a lot with movies store their iMovie libraries on an external drive. The drive must be formatted Mac OS Extended (Journaled) or APFS in order to store an iMovie library on it. If you need to reformat the drive, be aware that reformatting will erase all data on the drive. So back up elsewhere any data that you want to keep. Then reformat, and then move your iMovie library to it.
The iMovie app itself doesn't contain any media. The media is stored in the iMovie library in an Original Media folder for each project and event. The iMovie app refers to the media in the iMovie library. The thumbnails that you edit in iMovie are medium resolution thumbnails for editing purposes. They are not the original media.
-- Rich