When you flash the firmware it overwrites the rootfs. This should leave all your user data and settings untouched - you'll need to reinstall applications but the configuration should persist.

If you reflash the eMMC then this will overwrite the user's home directory and the MyDocs directory as well. This will wipe out all user data and configuration settings.

The backup application can write to either the MyDocs directory or the SD card. If you write to the SD card then it will not get touched by any reflashing. If you write to the MyDocs directory then it will be untouched by a firmware flash, but will get wiped by an eMMC flash. It should backup the system configuration, contacts, conversations, a list of installed applications (allowing easy reinstall), and (if applications have installed a list of files to backup) application configuration.