haha! that's what draws people in, the thought that by getting a mac you're entering a whole new world. here's some info:
Cost of (Time Capsule) = Cost of (Hard Drive) x 4
counterintuitively to that equation, though...
Time Capsule = Hard Drive
Think about other apple products... they're the same thing as equivalent non-apple products at twice the price (or more). Sure, a time capsule can be wirelessly connected, and maybe a couple other cool things, but that's really unnecessary anyway.
You are correct, time machine is used to back up your mac's information. I use the app "carbon copy cloner" to make bootable clones of my mac... that is, if my mac ever fails (and it has, twice, and apple has replaced the hard drive twice for free) then i can boot from that external hard drive.