What if you lost all your data right now? For example, your hard drive stops working? Or someone steals your computer? Are you able to recover your most important documents or the whole system?
Windows Vista and 7 have something like documents backup built in. This is called Previous Versions and you can always try it for restoring a file or folder before using other software. But do not rely on Previous Versions too much - you still need to make a daily backup of your documents to an external hard disk to be sure that you can recover your files after your hard drive crashes or your computer is stolen. Files and folders recoverable with Previous Versions are kept on the same hard disk with Windows Vista or 7 - you have been warned! 
Windows 8 includes somewhat enhanced Previous Versions, but it has been renamed to File History. While you must turn it on manually, it now keeps larger portion of file version history on a different drive (secondary hard disk, removable disk or network drive) and only the latest ones on system drive. Windows 8 allows including and excluding specific folders in File History.
Another new data protection feature in Windows 8 is Storage Spaces - combining multiple hard drives or SSD-s into one fault tolerant storage pool. If a drive fails, your files will remain in tact and you can replace the failed drive. You can mix internal and external drives, drive enclosures and drives with different interfaces (ATA, SATA, SAS and USB). You can put your File History, backups or just really important documents on Storage Spaces.
On all Windows versions, free SugarSync online backup can be used for file versioning - free plan is limited to 5 gigabytes, but up to five versions of each changed file are retained.
Microsoft likes to limit backup software in different versions of Windows - Windows XP Home has no backup program at all and Windows Vista Home Basic does not support disk image backups. Windows 7's Backup and Restore (also available in Windows 8 as Windows 7 File Recovery) is much better compared to its predecessors, but you might end up in trouble when you're trying to restore a RAID system; and your backups cannot be protected (encrypted or password-protected) on external disks.
Windows 8 takes a completely new approach to backups - the Refresh your PC feature does restore your computer to a working state, but by default you will lose all installed Desktop programs and those Metro apps that were not installed from Windows Store. Your documents and most personalizations will stay in tact, though. But with some command-line magic (recimg.exe) you are still able to Refresh your PC without losing Desktop programs.
The Backup and Restore feature known from Windows 7 is also available, well-hidden under the name of Windows 7 File Recovery.
I suggest using EASEUS Todo Backup Free version 4.0 for Windows backups. It is capable of making and restoring both file and disk image backups, supports incremental backups and both encryption and password-protection. Sadly, version 4.5 removed encryption and password options - but I do have a download link for 4.0! 
Windows 7 and 8 users who do not need to encrypt or password-protect their backups can safely use the built-in Backup and Restore instead.
When and what to back up?
I recommend having two different backup types:
- Daily backup of your user folder including your documents, pictures and other folders, e-mails and settings. This helps when you accidentally delete some files or folders you need and you cannot recover them from Recycle Bin or using Previous Versions in Windows Vista and 7 or File History in Windows 8.
- Weekly disk image backup for restoring the whole computer in case of hard drive failure or Windows not starting anymore.
Where to back up?
This is a very important question - do not overlook this information!
The easiest way would be to back up your files and settings to the same hard disk where Windows is installed. But that would make your backups totally useless when your hard disk breaks down and nothing can be restored from it. You would be without your data and your backups then! I never recommend this strategy.
Backing up on a second hard drive (if you happen to have that) in your computer sounds better, but that would also be useless in case your computer gets stolen. And sometimes power peaks and outages can break all hard disks in your computer. I would not use that strategy either.
Please use some form of external media for backing up. Depending on how much data you have, you can use USB flash drives (also called USB sticks) or external hard drives. You can also use DVD-s or CD-s as backup media, but their capacity is limited and they are prone to scratches and quick aging (read - you lose the data on such media quickly).
If you are using an external hard disk, there is a chance that it is formatted using FAT32 file system. This might mean errors and failures during backups, because FAT32 file system cannot create files larger than 4 gigabytes (GB). Please convert the file system to NTFS before backing up - instructions are available here.
Also, store your most important files securely online - SugarSync offers 5 gigabytes of space for free.
How much capacity do I need for backing up my documents and settings and creating system images?
To find out approximate disk space needed on external drive, open My Computer / Computer (you can use keyboard shortcut Windows Key+E to open Windows Explorer). Find and right-click the drive with "(C:)" in the end. This might be "Local Disk (C:)" if no label is specified for the drive, or it might be anything else with "(C:)". In Windows Vista, 7 and 8, it also has four-color or blue Windows icon in the left corner to indicate that Windows is installed on this hard drive.
Click Properties in the menu.
Disk Properties window opens. See what's written after Used space and remember the rightmost number. In picture below, it's 18,0 GB (gigabytes).
Click OK to close Disk Properties. If you have multiple hard disks or partitions to back up, open their Properties and add the numbers of used space to the total.
Now multiply the figure with at least two (18 x 2 = 36 GB in my case), add about 10% (36 + 3,6 = 39,6 GB) and add about 10 gigabytes (50 GB) - that calculates roughly into space needed for at least two full backups. This formula gives you enough room for some growth and several full backups.
If the total size needed for at least two full backups is less than 16 gigabytes, it is cheaper for you to buy a USB flash drive. Modern USB flash disks can contain at least 2 GB of data and they go up to 64 GB and more. But their prices also rise drastically when the capacity is more than 16 GB.
The advantage of flash disks is that they are small in size (you can put them in your pocket) and they can handle rough usage (do not throw them in water or beat them with hammer, though!).
If total capacity needed exceeds 16 gigabytes, it is cheaper to buy an external hard drive. Although they are very different in capacities and sizes, the most important thing is to make sure that it meets your gigabytes requirements. Please be aware that Easeus Todo Backup Free supports drives up to 2 TB (terabytes) in size.
It does not really matter whether you buy a 2,5" or 3,5" external drive. The smaller ones are based on laptop hard drives, meaning that they are smaller and slower, but usually more resistant to falling down. You can get the cheapest one, as long as its capacity is sufficient.
Please remember to dedicate your external media for backups only! Do not use it for anything else to prevent running out of disk space.
