A little confused about Windows backup utility

Alright, so I'm about to do a clean install of Windows 7. I realize this wipes your whole HDD so I need to back up my data.

I have a 500GB external HDD which is more than enough.

My problem is this. I don't know if I should back up EVERYTHING.The backup utility gives you the option to manually select what you want to back up and then I can check all the things I want to backup.

My worry is that if I check ALL the files which includes my entire C: drive and all my "my documents", "Pictures" folders...etc...will this interfere with my newly installed Windows when I restore these files?

What I mean by this is there are certain files such as "windows games" and I assume even my current OS, that will be backed up.

Now I'm sure my new OS will have some of those same files already installed, such as games like minesweeper and such. That's just an example I'm sure there's more important stuff.

Will this cause a problem if I backup my ENTIRE HDD and restore it all onto a fresh OS?

Also, to anyone familiar with steam, will it be ok to just copy my entire steam folder and then restore it without running into problems? Will I have to redownload steam or my games? Will I lose game saves?

Thanks in advance.

I've heard of windows.old, but isn't that just a folder on your current hard drive? I've heard it's better to do a real backup. I just want to know if it's ok to copy every single thing off my current HDD onto my external HDD without problems. When I restore it all will I have to re-download/install my programs?

Also, do I need to do the image backup that way? When I go to the backup utility it asks me if I want an image backup. Is that the same?

Great. Now I just read that windows won't back up Program files. So HOW am I supposed to backup my steam games and game saves? All of my most important files are in my program files. This is just ridiculous.

Ok, so since I'm backing up my HDD to restore the files on a new OS should I use image backup? I'm obviously going to back up my actual data such as games, homework etc, so should I do one or the other or both?

Also, do you know the deal with Program files like I mentioned above? Will it really not let me back them up? I've read about people backing up their steam games and saves, but these are in the program files section along with other important files which Windows apparently won't let me back up, so how do I get those files onto my new OS?

All I really want to do is have all my important data on my new OS after I do a clean install. I didn't think it would be this complicated.

Can I backup everything and then copy and paste important files in case they didn't get backed up and make an image backup?

Alright, but I have the option not to restore using the image right? I can restore using my normal backup or the files I copied. Correct?

Sorry for all the questions. But this is serious business lol.