If you want to install a new firmware update on your Android phone, that is, if you want to flash your Android phone with a custom ROM, then you must take a full backup of your Android phone. NANDroid Backup is an option!
The term NAND in NANDroid is a combination of logical gates NOT and AND, which stands roughly for the hard drive of your Android phone or device. Thus a NANDroid backup is a full backup of your Android phone or device, including user files and system files. Its basically a backup of all the partitions on your Android device including /boot, /system, /data and /cache. Unlike general backup of Android phone created with the help of Android apps, a NANDroid backup is a full snapshot of the current condition of your Android phone, and you can restore to this point using this backup.
Thus, while updating the firmware of your Android phone, if you accidently corrupt the stock ROM, you can simply restore it using the NANDroid backup.
There is no official procedure of creating a NANDroid backup of an Android phone or device yet. You need to install a custom recovery solution like ClockworkMod Recovery to create a NANDroid backup. The procedure to install custom recovery is different for each Android phone and device. You can use the search box above to find the exact procedure to create a NANDroid backup for your phone or device.