Can I save my free upgrade to Lion?
From your question it is ambiguous whether you want to 

a) Be able to reinstall Lion in future, if, say your HD crashed.

or

b) Save your Lion install to prevent having to download it again.

or

c) Create a bootable install disk.

If a):

The Apple Recovery Disk Assistant will create a rescue disk for you on a USB drive. Follow this link:

http://support.apple.com/kb/DL1433

When you use it, the latest version of Lion will be downloaded from their servers. NB You do not need a copy of your Snow Leopard install disk to use this.

If b)

You need to save the "Install Mac OS X Lion" app which is downloaded from the app store when you install Lion. The other answer here by bmike will tell you how to do that.

if c) see:

http://lifehacker.com/5823096/how-to-burn-your-own-lion-install-dvd-or-flash-drive

Regarding legality: a) and b) are permitted by Apple, c) is probably not.