[Hero, G2 Touch Android Development] dkelley:
Backup: vanilla (maybe sense too) 2.1 roms will optionally and by default backup the list of apps you install from the market, including the version numbers, to the google servers.

Restore: when you install a froyo rom there is an process, enabled by default, that redownloads and installs all of those market apps automagically once you login to your google account on the phone.

my brief summary of it's usefulness:

pros:

- magically cool

- relatively fast, to me with wifi-n it's almost as fast as titanium restore.

- first time you experience it you're like wtf, this is cool

- doesn't require backup apk space on your sd card between rom flashes

cons:

- bandwidth. it starts automatically as soon as you log into google account. even before mail and contacts are synced. data is being transferred, apps are being downloaded. So on any froyo rom, just in case this is happening, you should ALWAYS enable wifi right away as soon as you get to your launcher after logging into google account. the first thing google restores is your wifi and network settings, so if this is working and you had wifi enabled under previous froyo or 2.1 rom where this option existed (certainly all vanilla roms at least), you won't even have to choose your wifi access point or even login again, it's restored (and yes, passwords are encrypted apparently by google, no worries there). BUT WIFI IS NOT AUTOMATICALLY ENABLED EVEN IF IT WAS ENABLED DURING THE AUTOMATIC GOOGLE BACKUP! so you must enable wifi quickly in froyo just in case - you wouldn't want your data use being eaten up, right?

- only restores market apps. If you have apks manually installed, you will have to reinstall them manually again.

- makes phone very slow until it's done. You can't really do much for first half hour or so as a result.

- interferes with market downloads you do manually, and vice versa, so best to just sit and wait until you are notified that it's done. however it doesn't make it clear when it's really done - it sometimes says "partially restored" when it got interrupted, and then it will try again to complete soon. sometimes it just says "46 applications restored" or wahtever. but you'll find later it goes for more again if you had more than that. unclear for sure.

Control:

- you can disable it's backup and restore features in settings->privacy under froyo

- you can (I believe) disable it's backup feature under a 2.1 rom in settings->privacy.

Issues:

- aside from inconsistent notifications, at least one hero froyo rom doesn't reliably start the restore process when you login to your google account. So if you use that rom (it's either cronos or fusion, I dont' recall right now), it will not restore anything and not let you know. back to square one. note: it may well not be the rom's fault, and others have had it work, but it's never worked for me on that rom.

- if you disable it's backup feature in settings->privacy, you're not disabling the restore of your info, you're deleting your backed up app info entirely from google. that's it. won't work again until you manually install some apps from market, and only those new ones will go into your backup list. Clean slate kind of, really annoying that it doesn't let you manage your backups better on the google servers.

- having the backup feature enabled can, according to some people, eat battery. I haven't compared but get good battery life with it enabled all the time. I'm going to try an experiment with it disabled though sometime to compare.