You're not backing anything up. That was never the purpose.
The purpose is to decrease load times and let the 360 run cooler/quieter. It also lets you continue to play damaged discs if they're already installed, so long as the boot sector is still in tact.
Again, think of it like a PC, if you buy a game (not steam) you install it, and run it off the disc to authenticate copy protection. If they let anyone run the games right off their hard drives with no authentication, they'd put themselves out of business fast. No developer would want to work with a console that sells 1 copy for every 10 installs, they'd rather go back to PCs.