Best answer as chosen by user Rhorr77: No, the media does not need to be on your iMac.
I presume that you could view the media when it was on the iMac.
That said, when the video was on the iMac, it would have been in a folder called iMovie Events.
Make sure that it is in a folder of the same name on the external hard drive.
In iMovie, you should be able to see all your drives, internal and external. iMovie will display the contents of the the folder called iMovie Events on each drive.