Time Machine creates incremental backups of files that can be restored at a later date. It allows the user to restore the whole system or specific files.
You can use a TimeCapsule external WiFi disk, or an USB disks that OSX will format to be used as backup storage.
TimeMachine can work with remote units mounted over network protocols like AFP or SAMBA, but this way is not supported by Apple, but they allow you to do it without support running next command to enable it:
$ sudo defaults write com.apple.systempreferences TMShowUnsupportedNetworkVolumes 1
Configure a Remote resource using SAMBA or AFP where to save the data, I recommend you to configure an empty resource (called TM_backup for example) and set up security to allow only some specific users.
Now, mount this SMB resource (or AFP) in you Mac and go to System Preferences and click on TimeMachine. Select Choose a disk and select the remote mounted resource. Press “Use Disk” and it will create the necessary files to allow to store your backups.
In this resource OSX will create a folder called:
hostname_xxxxxxxxxx.sparsebundle
where hostname is the name of your Mac and xxxxxx is an exhadecimal number based on your ethernet or Wifi device.
Your backup will be stored inside a folder called bands, you can find some files like Info.bckup, Info.plist and token that set some options and default values to our new backup.
You can use this backup to restore user configration and applications in case of problems, trust me, it works like a charm :).
You were right, hence updated! :)