Offically the iMac can only mirror it's display. There is a firmware hack to change this though - but it sounds risky and it will void your warranty. I don't know if you would really want to do it. Here is the link anyway though, it might not even work on your model but it's something to look into.
If you don't really need dual displays I wouldn't do it. Also to add another display you need to get the mini-vga adapters from the Apple store, you can get a Mini-VGA to VGA, or Mini-VGA to S-Video/Composite - both are $19 each.