A nand back up backs up everything you have set on your current ROM.
Contrary to what you might think, you cannot nand back up your current ROM and restore onto a new ROM.
So say you have EvilEris and do a Nand BackUp of it, then wipe and flash WhiteWidow. You cannot restore your EvilEris BackUp onto WhiteWidow.
So in essence, a Nand BackUp is a fall back, a saftey net.
Now that you know more about Nand BackUps we can go through actually backing up your current ROM:
1-Boot into recovery
Method 1 (recomended):Go to the Market and download QuickBoot.
-Open QuickBoot and tap 'Recovery'
Method 2: Power off phone, then hold Vol-Up+End
2-Use the trackball to select 'Backup/Restore'
3-Select 'Nand Backup'
4-Trackball to confirm
And you're backed up, hit Vol-Down to get back to the 'Main screen' then reboot the system.
Now to restore this to to:
1-Backup/Restore
2-Nand Restore
3-Trackball to confirm
4-Trackball for all questions.