You've highlighted the wrong part of the sentence. "iTunes doesn't provide a mechanism for choosing where this backup data is stored, but it can be relocated onto another locally connected drive..." You have to perform a file system trick using the operating system which, unbeknownst to iTunes, pushes the data iTunes that saves into C:\...\MobileSync\Backup into a location on your preferred drive, or passes it back to iTunes from that location when it wants to read the data. While the process works iTunes still checks the system drive for free space, so while you could set up the symbolic link you would still find that iTunes would report that there isn't enough room on your small system drive to backup the device. You should probably look at backing up to iCloud.
tt2