wallet is a crappy term for the client and wallet.dat.. it should be keys.dat.
Your coins exist online, in the block chain, not in your "wallet.". You wallet contains encryption keys, which tell it which coins belong to you on the blockchain.
it's not really a minor difference... see anyone with a copy of your keys can move your coins around on the blockchain at will. Just like someone with a copy of your house keys can get into your house when you arent there. But you cant copy someones real life wallet with real life cash in it. And lets say you cloned the real life wallet, and spent the cash in the other one, this would not effect the cash in the first one. So wallet is a horrible name.
It is more like keys or a credit card number(which is sorta like a key in it self).. your credit isnt stored on the card itself, but at the credit agency, the card simply tells the merchant and the credit agency which account is yours.
Do back up the wallet.dat file.. best to a usb key and then best put in a bank in a safety deposit box(in case your house burns down)
it is also good to keep the original wallet.dat on a usb key that you only plug in to move coin. This way if you do get a trojan if wont be able to find your wallet, unless you plug it in.