The main reason to use multiple iTunes libraries would be to divide specific data into different libraries. This can be dividing losless and lossy music, libraries for specific occasions, specific music genres or types like bootlegs or live music only.
You might want multiple libraries so that you could, for example, have a library of holiday music that wouldn't appear in your Party Shuffle mix the rest of the year. Or you could use separate libraries to keep your music on your computer and your movies on an external hard disk.
It is actually very easy to create a second iTunes library. All that needs to be done is to press the Shift key (Alt on Macs) before launching iTunes. A small popup window will be displayed asking the user to choose or create a library.
Steps To create or use a different iTunes library:
If iTunes is open, quit it.
Hold down the Shift key while you open iTunes (from the Start menu, choose All Programs > iTunes > iTunes).
In the dialog that appears, do one of the following:
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To create a new library, click Create Library.
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To choose a different library, click Choose Library.
You can name your iTunes library (the folder containing all of your iTunes content and the iTunes Library.itl file) whatever you like and store it anywhere.
Selecting the create a library option will create a new iTunes library that acts independently of all other iTunes libraries. It should also be noted that iTunes will always open the library that has been used the last time iTunes was executed. Switching libraries would again require pressing the Shift key during launch.
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