There are two main types of back-up - complete system back-up and data back-up.
A full system back-up allows you to return your system to a previous state by copying the all the information on the hard drive using drive imaging software such as that suggested by BJ above. This approach allows you to quickly get your system back if you ever experience a major system problem.
The alternative is to create a back-up of your data only. It this case, if you have a major problem you would need to reinstall all your software from the installation discs and then recover your data from your back-up (e.g. using the method suggested by spikeychris).
Both methods have advantages and disadvantages but make sure you do one or other!