There's File History - which saves old copies of your files, so you can restore if you need to get a previous version.
The is "System Image", which is a snapshot of everything - useful for completely duplicating the hard drive if you need to.
And the "Backup and Restore" - which periodically backsup the folders you tell it to.
In any event - a 1GB USB drive is nowhere near big enough! That is the cause of your message - it is not "usable" because it doesn't have enough room. Time to go shopping for at least a Terabyte (or more) for your backup storage.....that way you can have multiple copies going back in history, to restore if needed.