No physical media involved, it makes a copy of your folder so you can keep all your games/maps/etc. From there, you can move the backup anywhere.
If your drive fails, well, you'll lose your personal game files if u didn't copy your backup somewhere else. But with Steam, you can download the entire game again unlimited times. The only restriction is that you can only be logged into Steam on one computer at a time. This is makes it hard to share accounts with people, which is expected.
Personally, I think Steam is extremely useful. Like many others have said, if you don't like the distributor, distribute your game with someone else. Valve doesn't have a monopoly on online distribution, they just happen to be good at it.