Backup VS. Sparseimage?

[MMM]

What is the main difference between a 'Backup' and a 'sparseimage'? I know that a sparseimage is contained in one file, but when would you use one verses the other?

[dnanian]

Take a quick look at the chapter "storing a backup alongside other files on a destination volume" in the User's Guide. I go into some detail about the advantages/disadvantages there.