I see the little Backup thing in the launcher-what exactly is this backing up? And to where?

I'm on day 4 with my Pre, and I have a little oreo play, so I'm just curious what the process will be like if I decide to exchange. Will it be a lot of work to get my contacts/music/pictures over?

Also, does anyone have a Pre with absolutely NO oreo effect? Mine isn't too bad, but if I can find one with no play, it would be worth it to me.