A nandroid backup is a backup that is made of your currently installed system/ROM from the recovery ( it is a total and complete backup of you ROM). Go to the "backup and restore" option and select "backup" when it is done you will have a nandroid backup stored in the clockworkmod folder on the sdcard.
If you ever mess up, or install a ROM you don't like: Wipe and format everything necessary for a fresh ROM install, then go to the restore option. When it is done your backed up ROM/system will be installed. Reboot in to system. Everything will look exactly as it did when you made the backup.
Note: If you update a lot of apps or make majors changes to your ROM then make a nandroid of that and delete the old one. They will have a date/time stamp on them in the clockworkmod folder.