User files are considered to be in the /Users folder -- it's completely location based. Your music, photos, etc remain on the original drive and are shared (symlinked) to the Sandbox.
You would, indeed, boot from the Sandbox/Safety Clone on the external.
As above, the /Users folder is really on the original drive, and the contents aren't copied, only shared/linked.
Hope that helps to explain...
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--Dave Nanian
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