Welcome to the forum johnnya!
1. It's true that Shadow Copies (also known as Previous Versions) will take up a fair amount of disc space, depending on how many User files you have, of course. But the other side of the coin, is the question of how important having a back up (of sorts) is to you. It's all a question of priorities. For me, it's crucial, and not an option. If I lost my professional files, I'd be toast! For you the situation may be different.
By the way you referred specifically to Shadow Explorer (ShadowExplorer.com - About
) which is 3rd party software, and is an alternative program to Shadow Copies for all editions of Vista or 7 for the “Previous Versions” feature that is only available for the higher end editions. If you do not have one of these versions, then this is a great alternative.
2 In regard to System Restore, it does not change or overwrite User files. It simply undoes changes to the Windows system made since the time of the restore point.