The archive does not need to be on the same drive as the items you wish to archive. You browse an archive just like a folder. Explore' gives you a tree view in left hand pane. This can aid your navigation of the archive. Open an archive and you'll see any contained snapshots.
Snapshots are moments in time.
Open a snapshot, and you'll see the items you've added at the moment the snapshot was created. Because the items are frozen in time, we call them revisions. An archive may contain many snapshots, and many revisions of a single item. This might be best understood if you consider an archive containing two files. If only one files changes, each snapshot will contain the same revision of the static file, but different revisions of the changing one.