If you back up your entire disk with Time Machine, you can restore it later to its exact state from any of numerous times in the past. Theres just one problem: Restoring a whole disk using Time Machine takes a long, long time. (Depending on how much data you have, whether you used a local hard drive or a Time Capsule, and several other variables, it could be anywhere from hours to days.) While that restoration is in progress, you cant do anything else with your Mac. So, even if takes you just a half hour to replace a faulty disk, you realistically wont get any more work done today.
That might not be a problem if you only use your Mac recreationally, but if youre facing time pressures and dont have another computer, it could turn into a crisis. So I always recommend a second type of backup: a bootable duplicate, which is a complete copy of your startup disk on an external hard drive, copied in such a way that you can start your Mac from the duplicate if necessary and get back to work almost instantly.
Many backup apps can create bootable duplicates, but Time Machine isnt one of them. If you dont already have a tool to create bootable duplicates, Bombich Softwares $40 Carbon Copy Cloner and Shirt Pocket Softwares $28 SuperDuper! are excellent choices. Be sure to update your duplicate at least once a week. If you need to start your Mac from the duplicate, make sure its plugged directly into your Mac, restart while holding the Option key, and select the backup drive.
Make backups for your backups
When it comes to backups, remember the adage Dont put all your eggs in one basket. Several times Ive had the gut-wrenching experience of looking for a crucial file in my backups only to find that the backup drive had itself gone bad, the online backup provider was down for maintenance, or something else made it impossible for me to get at my data.
So I learned to keep multiple backups, on separate media. This could mean, for example, two different hard drives, or a hard drive and an online backup service, or a NAS (network attached storage) device plus Dropbox. But one way or another, I recommend having backups for your backups!
Keep some backups offsite
Make sure at least one of your backups is in a completely different location from your Mac at all times. After all, the same fire, earthquake, or hurricane that wipes out your Mac can wipe out your backup drives too. Also, if a thief breaks in and grabs your Mac, hell probably take that shiny backup drive as well.