There are many things that can cause you to lose the content of your computer. Apart from viruses or worms destroying your files or crackers accessing your computer using trojans to do the same, you may lose your data through a power failure, a program crash, or one of a whole series of other accidents.
Having a backup of all of your data means that if the worst happens you haven't lost everything. You will be able to recover everything on your existing (or replacement computer) up to the point where you created the backup.
There are a number of different ways in which you can back up your data. The cheapest one involves the most work on your part and involves you manually copying files to a backup location on a regular basis. Slightly more expensive is to purchase backup software that will copy all of the necessary files for you automatically at the required interval where all you might need to do is to supply the backup media. More expensive again is to add a Network Storage Device (NAS) to your home network and configure it to back up all the essential files from all your computers. The most expensive option is to use an online backup service where your files are copied to the cloud.
The other thing you need to consider is what to back up. Obviously you don't need to backup the operating system as that can be restored from the install disks. Similarly any applications you purchase on physical media will be able to be restored from that media. Any downloaded applications may be able to be downloaded again but if it is one you purchased you may wish to take a backup to external media to keep with your operating system and other application backups.
The files that you definitely need to backup are those you created yourself and those sent to you by others. On a typical windows system this means that you have two folders that need to be backed up. One of these is the "My Computer" folder where the data files are kept on most windows systems. The second is the folder where all your emails are stored - the exact location of this folder will vary depending on which email program you are using.
The one other thing that might be worth considering including in the backup process is the registry.
This article written by Stephen Chapman, Felgall Pty Ltd.