As of Windows 11 23H2 and 24H2, Microsoft introduced a new app (distinct from File History). It is designed to back up your PC to OneDrive primarily, but it intelligently uses an external drive as a cache or overflow location if you have one attached.

Settings > System > Storage > Advanced storage settings > Backup options and select Add a drive to choose your external device. System Image Backup (Full Recovery)

Note: System images are not incremental; each new image overwrites the old one unless you manually rename the folder.

This caused confusion because older guides suggested any external drive works.