What does iTunes backup when you connect your iPhone

Hi,
Can someone help me to understand the following two folders.
I have been using the iPhone since when it first came out (2007) and syncing with iTunes, one thing I havent understand is what is iTunes actually backing up when you connect your iPhone, does the backup contains everything in your iPhone?
In other words does the backup contains your iPhone apps, photos etc.?
~/Library/Application Support/MobileSync/Backup/
The other folder I don't fully understand is the "Mobile Applications" folder, the reason for this question is because I relocated my default Media folder to an exteranl HD and when I sync my iPhone everything is fine I haven't had any problems but when I go and open this folder it has only a few apps but my iPhone has a lot more.
Why the amount of apps in my "Mobile Applications" folder doesn't match the amount of apps on my iPhone?
Can someone tell me what is this folder for?
...music/Media/Mobile Applications
I'm currently running, iOS5
Thanks a lot!

For the second here is some reading...
https://discussions.apple.com/message/8501648#8501648
https://discussions.apple.com/message/11437359#11437359
https://discussions.apple.com/message/11386585?messageID=11386585&amp%3b#1138658 5

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