What is backed up from the wallet If I backup a wallet what exactly gets backed up? All the bit coin addresses associated with every transfer? 

If so does that imply if I "lose" a bit coin address that my final balance will be incorrect (since one's balance is calculated as the sum of transfers IN less the sum of transfers OUT)
Transactions are stored in the block chain, so you never lose them.  However, if you lose the private key associated with an unspent output, then you can never spend it.  So it is important to always back up your private keys (the public key and bitcoin address can be derived from just the private key).  When you import a private key into a new wallet, the wallet will scan the block chain looking for transactions that match the associated bitcoin address.  These transactions will then appear in your wallet without any further action on your part.

Some wallets use discrete private keys, which means you must backup the wallet each time a new private key is generated.  For example, Bitcoin-Qt keeps a pool of 100 new private keys, so you only need to backup the wallet after every 100 send requests (since change is returned to a new private key).  

Deterministic wallets only need to be backed up once since they generate new keys using a stored seed.  If you need to restore the wallet, the private keys can be regenerated from this seed.  Electrum is an example of a deterministic wallet.