When you back up your iPhone using iTunes what all does it back up?

Does it include pictures, contacts, text messages and all that?

Yeah. Basically, it backs up all your memory. So in case something is wrong with your phone, you can restore it. It saves your contacts, notes, messages, etc. It's just to make sure you can access this info in cas you restore your iphone.

It backs up everything (messages, pictures, contacts, history, etc) EXCEPT apps. To "backup" your apps, you need to right-click your iPhone in the left pane in iTunes and click "Transfer Purchases."
This might take a while depending on how many and how large your apps are.

Yes it does.

Yes, basically this info is in the backup file. But, there's no easy way to check if the backup really succeeded. I therefore back up at least my contacts with this app: http://www.copytrans.net/iphone-contacts.php