scratch disks full

After installing a new external hard drive, the message came up that the photoshop scratch and the windows principle paging file are on the same volume and it results in reduced performance. It goes on to say that I should set the principle scratch volume to a different volume on a different physical drive. (none of this do I understand) Right after this, the photoshop wouldn't open. I deleted various programs and it finally did start again.

I really don't know where all the space on my hard drive has been used. It's supposed to have 2.66 Gh. When I pulled up the local disk properties screen under my computer, it shows that I have 74.3 GB used and only 156 MB of free space.  When I was trying to defrag, it was showing that I had 0% of free space and it wouldn't work properly with less than 15%. After dumping those programs, it still showed 0% free space.

PLEASE HELP!!! I was about the install a new Office, but am afraid to proceed without a clear idea of how much space is on the computer and where it is.