A system image backup by Win 7 always includes the partition (drive) containing the OS.
If you have more than one partition (drive), then you can also select any or all of them
If your music is on D:, your games, pics, etc on E:, then you can have D: and E: included in the system image backup.
I always include all parititions in a system image backup Takes longer but then I have a 100% image.
You can extract folders and files from a system image backup if needed.
Each drive is stored as a file, without any empty space, as a file - a VHD file.
For more info, there is google, there is WIN + F1 key combo and there are our fine tutorials: Backup Complete Computer - Create an Image Backup