The first method of backing up your data is called "drive imaging". You make an exact copy of the partition or drive and store it either on another hard drive, computer or other storage media like a CD. The data is in a compressed form to keep the size down and in case there is a PC disaster, it can be easily uncompressed and written to a new hard drive for a full data recovery. There are a couple of disadvantages to this method. "Drive imaging" can take a ton of time and a ton of space. Floppies are out of the question and even a single CD cannot normally hold all your data. Consider also that the moment you have entered new information, the disk is out of date, and any files created since the backup will not be available in case of disaster. Daily backups are just not a pragmatic solution either.
Combining a drive image along with an archiving solution is the failsafe method. Once a drive image has been created, you copy the files and folders you want to keep onto some backup media (another networked computer, CD, zip). Here is where you might incur some expense other than a spindle of CD disks. Backup software helps you back up your chosen files into a compressed file ready if and when you need them. This software, including backup utilities in XP Home and Professional, can perform the archiving activity via a schedule and will only access the files that have changed since your last backup.
If you have a relatively small collection of files and folders that you wish to save, just create a backup folder, copy all your files into that folder and then hustle them over to another drive or CD. Unfortunately, most of us are not particularly conscientious in our backing up and there will be a lot of data AWOL at the end of the day of disaster.