Clockworkmod Backup/Restore Feature
What ClockworkMod does is a so called Nandroid Backup. Basically, this contains an image for each of the file systems of the device (i.e. one image per file system) -- and thus it is a full backup/"image snapshot". The format of the snapshot might differ and depend on the device and ClockworkMod version being used; for my Motorola Milestone 2 most of the file systems seem to be captured as YAFFS2 image, i.e. the image uses the same file system used on the device. So it is comparable with using dd on Unix/Linux (see Wikipedia), at least in my case.

Newer versions of ClockworkMod Recovery (6.0 and up) also do "incremental updates" to save space on the backup medium and allow for faster backup (see e.g. this TechieBuzz.COM article). For this, you might also want to check our question How can I tell CWM to perform a full backup instead of an incremental backup?

More details you can also find by following the clockworkmod tag.