Time Machine is the breakthrough automatic backup that’s built right into Mac OS X. It keeps an up-to-date copy of everything on your Mac — digital photos, music, movies, TV shows, and documents. Now, if you ever have the need, you can easily go back in time to recover anything.
Set it, then forget it.
To start using Time Machine, all you have to do is connect an external drive (sold separately) to your Mac. You’re asked if you want it to be your backup drive, and if you say yes, Time Machine takes care of everything else. Automatically. In the background. You’ll never have to worry about backing up again.
Back up everything.
Time Machine backs up your system files, applications, accounts, preferences, music, photos, movies, and documents. But what makes Time Machine different from other backup applications is that it not only keeps a spare copy of every file, it remembers how your system looked on a given day — so you can revisit your Mac as it appeared in the past.
Go back in time.
Enter the Time Machine browser in search of your long-lost files and you see exactly how your computer looked on the dates you’re browsing. Select a specific date, let Time Machine find your most recent changes, or do a Spotlight search to find exactly what you’re looking for. Use Quick Look to verify the file’s contents if you wish. Then click Restore and Time Machine brings it back to the present. Time Machine restores individual files, complete folders, iPhoto libraries, and Address Book contacts. You can even use Time Machine to restore your entire computer if need be.
How Time Machine works.
Beneath the hood, Time Machine is every bit as remarkable as it is on the outside. It’s based on stable and secure Mac OS X core technologies (like the HFS+ file system), automatically tracks file changes, and is aware of file system permissions and user access privileges. Bottom line: It’s working with more information than other backup utilities and doesn’t need to bother you for input.
Pick a disk. Any disk.
You can designate just about any HFS+ formatted FireWire or USB drive connected to a Mac as a Time Machine backup drive. Time Machine can also back up to another Mac running Leopard with Personal File Sharing, Leopard Server, or Xsan storage devices.
Back up the whole family.
The moment you choose a Time Machine drive, a single folder is created on the drive. Inside this folder is a subfolder for each Mac being backed up. (Yes, multiple Mac systems can share the same backup drive.) And within each subfolder is another list of folders — one for every backup performed on that Mac. Time Machine uses a standard file system to store all of its information. Nothing hidden anywhere.
Time Machine showcase
Anatomy of a backup.
For the initial backup, Time Machine copies the entire contents of the computer to your backup drive. It copies every file exactly (without compression), skipping caches and other files that aren’t required to restore your Mac to its original state. Following the initial backup, Time Machine makes only incremental backups — copying just the files that have changed since the previous backup. Time Machine creates links to any unchanged files, so when you travel back in time you see the entire contents of your Mac on a given day.
Timing is everything.
Every hour, every day, an incremental backup of your Mac is made automatically as long as your backup drive is attached to your Mac. Time Machine saves the 
hourly backups for the past 24 hours, daily backups for the past month, and weekly backups for everything older than a month. Only files created and then deleted before the next hourly backup will not be included in the long term. Put another way: You’re well covered.
Working on your schedule.
Say Time Machine is in the middle of a backup and you want to shut down your Mac or put it to sleep. Who wins? Like you have to ask. Time Machine simply stops the backup process and remembers where it is. It automatically resumes when your Mac is active again.
Back up only what you need.
By default, Time Machine backs up everything on your Mac. If you want to exclude certain files, just go to Time Machine preferences, click Options, then select the folders you wish to skip. 
Want to delete all instances of a file or folder previously backed up? Easy enough. Launch Time Machine, select the item to be deleted, then choose "Delete from all backups" from the action menu in the Finder toolbar.
Backing up to a full disk.
One day, no matter how large your backup drive is, it will run out of space. And Time Machine has an action plan. It alerts you that it will start deleting previous backups, oldest first. Before it deletes any backup, Time Machine copies files that might be needed to fully restore your disk for every remaining backup. (Moral of the story: The larger the drive, the farther back in time you can back up.)
Migration with style.
To make setting up a new Mac even simpler, Time Machine shares its data with other Mac utilities. Use Migration Assistant to copy portions of any Time 
Machine backup to a new Mac, or select “Restore System from Time Machine” in the Leopard DVD Utilities menu. Choose any date recorded in Time Machine to set up your new Mac exactly as your previous Mac was on that date.
Ready when you are.
When your mobile Mac is connected to your backup drive, Time Machine works as you’d expect. When it isn’t connected, Time Machine also works as you’d expect. It keeps track of which files have changed since the last backup and backs them up to your backup drive the next time you connect. On any Mac, if Time Machine is unable to perform a backup, that’s duly noted in its preferences pane.
Reference : http://www.apple.com/macosx/features/timemachine.html
