While Time Machine on the Mac can restore your saved files, it can't be used to return your computer back to it's original state if you experience a disk crash. To do that, you need to create a disk image. A disk image is bootable, so if your drive crashes you can get a new drive, boot off the image, and then copy the image to your new drive. This restores all of your files as well as the complete state of your computer.

Creating a disk image for backup is really easy. At least, it is if you are using Leopard or Snow Leopard.

You'll first want to connect an external drive to store your backup onto.

Next start the Disk Utility application by going to Applications -> Utilities -> Disk Utility.

From the menu, select File -> New -> Disk Image from Folder....

This will bring a file browser. Select your hard drive that you want to back up.

You'll then get a dialog that asks where you want to save the image. Select the drive you connected and give the backup image a name. At the bottom of this dialog you'll want to make sure the Image format entry is set to compressed. Also, if you want to encrypt your backup (it does have all your information on it) you can select an option for the Encryption entry.

Once those choice are made, your image will be created and saved on your external disk. This takes a long time, about an hour for every 10GB of data you have. So make sure you do this when you won't be needing your computer for a while.