I use a program called Image For Windows.
It costs around $50 and worth every penny.
Another really good one for doing an image backup is ghost.
I still use Windows XP, so have never tried the backup utility that comes with Windows 7.
I only backup my main drive c. It has the OS, application programs and related data.
I had decided to start backing it up because if anything happened to the drive there's know way I could ever get things back to the way they were before a crash.
I never really expected to ever have to restore a backup image just thought of it as insurance.
Well as I said in another message I got that nasty virus and had no choice but to restore the last backup I had made.
I gotta admit I was pretty nervous when I put the recovery CD in and rebooted the computer and hit f8 to boot from the CD.
When the restore software came up I told it where the image backup was, chose defaults for all the options, hit enter and prayed. LOL.
When the restore was done I rebooted the computer and dam if it didn't boot up just fine, but in a state before I got that virus.
I lost about 3 days of e-mails and that was it.

I start an image backup every Sunday night just before going to bed.
I have a batch file set up to automate the process so just click on that and in the morning the image backup is on one of my external drives.
I hope this helps.

Tim