I use Acebackup2
AceBackup: The free Backup Software it is freeware and it works very well. There are lots of stratagies that people use, find one you are happy with. I only back up my data, and I try to keep my data in one spot. That way once I set up my backup it will find new and updated files and save them when I process the backup. I don't know if Ace has a function built in to do automatic backups, I just do manual ones.
We bought a WD MyBook 500 GB external drive for my wife's computer as the backup drive. It was pretty cheap though Costco and the software it comes with basically monitors the drives/folders you set up. As you make a change to a file in the monitored drive/folder, it backs it up. No compression from what I can see, but pretty slick. My wife has a partition that she uses exclusivly for data and that is what is monitored. We don't back up apps that we can reinstall, just a waste I think, and we don't backup the OS cause if it crashes I'll just reinstall and start fresh anyway.