What's the deal with iCloud?

I have an iPhone & still don't understand what iCloud is. I get it's like a storage device, but if you turn it on, where does everything go(the Internet, or your computer)? I tried to turn on the backup & storage option in icloud(on my phone), because about a month ago I had to restore my phone after it went in recovery mode & I pretty much lost everything. I don't want to lose everything again & was thing of using icloud(backup & storage), but when I tried to turn it on it gave me a message saying,"your iPhone will no longer backup to your computer automatically when you sync with iTunes." I want my phone to back up to my computer, but I also don't want to lose things on my phone. What's the better option, iCloud backup, or backing my phone up with my computer?

Http://www.apple.com/icloud/#video