Windows and most programs scatter files all over your hard drive. It makes them a lot easier to find when you need them if you take charge yourself. More importantly, you are much less likely to miss some critical files when you make backups. Good backup programs can deal with the scattered files, but it's easier in the long run to simplify the job in the first place
Organizing files is like skinning a cat. Everyone has their own way to do it. Nothing wrong with that as long as you get it done. I'll simply describe my way.
1. I put most of the documents I create, pages that I save from the Internet, etc., in "My Documents", which is what it is designed for. Many programs will not put files there unless you direct them there yourself, but I find it essential if I want to find them later, or back them up. I do move "My Documents" to another partition on my hard drive. That's not necessary, but it reduces fragmentation of the Windows partition and keeps it smaller -- see Windows help to learn how.
2. I don't fight Windows over the files and folders it wants to put in "C:\Documents and Settings\". That's where many of the settings that you should back up are located. I just back up that whole folder. (There are a half dozen files there that Windows may not let you copy, but they aren't critical for backup purposes.)
If you use Firefox, it's a good idea to use ["Tools" > "Options" > "Privacy"] clear the Cache before you back up "C:\Documents and Settings\" because there are a lot of files in the cache. You might want to move the Firefox cache to another partition to keep the "C:\Documents and Settings\" folder contents smaller.
3. I move as many program specific files as I can to folders within a common folder called "Program Data". The screen capture shows the scheme. Most of these programs allow you to set the location of their key user files. ClipCache, for example, captures and organizes text clips. The database of clips is in the ClipCache folder. I was able to specify where that is located by using the ClipCache options.
The Thunderbird email client is easy to back up. All your messages are located in one folder. (I move that email folder to my "Program Data" folder to make it convenient for backup.) I also move the folders for data files that other programs generate to that folder.
4. I keep programs that I download in a separate folder called "Downloads" with folders for sub-categories like Graphics, Hardware, Internet, Media, Tools and Web Building. That way, I can back them up separately from my data and documents.
Work out your own way of organizing your files. If you haven't learned how to work with Windows Explorer yet, now's the time.
Where should you keep backup files? The basic principle is, somewhere else -- somewhere where whatever happened to the primary file won't happen to the backup too. :-) I like a second hard drive. It's the most convenient and most reliable for backups. CDs are good too, and they are ideal for offsite storage (in case of fire, wind or water).
I use the "European" date system for folders or files that I want to keep in chronologic order. Particularly backup files. The Euro format is: year first, month next, and day last -- yy.mm.dd or yymmdd. For example, March 7, 2004 becomes 04.03.07 or 040307 -- just 6 digits for the compact format. You could use 2004.03.07 to make it a little more clear. It takes a while to get used to it, but there's no mystery about the year, the month, or the day. Compare that to 3-7-02. Even though that format is familiar to most of us, it does not sort in chronologic order.