As long as you're using an Intel Mac, you can use a USB or Firewire external hard drive.
You'll probably want to create a partition large enough to back-up all the data on the Mac you want a bootable copy for. The partition should be created in the Mac OS X Extended (journaled) format.
Then I would advise downloading a back-up utility like SuperDuper (free, but you lose a little functionality compared with the licensed version). If you use SuperDuper, you'll just open it up, select the HD you want to copy and where you want to copy it to, and let it do its thing. It will make a copy of your entire hard drive to the external drive.
Then whenever you want, you can press the proper key while starting up to enable you the choice of which drive to boot from. If you boot from the external HD, everything should look and be exactly the same as normal.
If your Mac's normal hard drive is ever erase, you can simply boot from the external, use Super Duper to copy the external drive to the internal one, and you have everything back.
