I've personally never heard of Backing Up everything being bad, so in that respect, there's nothing to worry about, it will just take you more space on an external hard-drive than if you have to just back up your home folder.
Also you may have to use the command line to back up seeing as you may need permission to copy certain files (I haven't check though so this may not be true). But to answer your question the
/ folder-thing is the root directory, where everything related to your Ubuntu distribution is found everthing related to:
- Hardware Drivers
- Files you've worked on + Personal settings for applications eg. Thunderbird
To answer your questions concerning Dropbox vs Ubuntu One I'll draw up a comparison of the two:
- Files are transferred to the your cloud storage through an encrypted connection
- Files are not saved in an encrypted form once there (however you can always turn your folders into encrypted zip files reasonably easily if you're worried about that)
- Files are also transferred to the your cloud storage through an encrypted connection
- Files are saved in an encrypted form using the AES-256 standard
Both Dropbox and Ubuntu One encrypt their connections so they are both considered safe when it comes to uploading/downloading. However Ubuntu one doesn't encrypt it's cloud storage space, so bottom line is Dropbox safer than Ubuntu One? (Up to you to decide really)
If I may add my personal opinion I'd say that even though Dropbox has better security when it comes to file encryption, I'd see Dropbox as being equally at risk due to the fact that it is far more widely used than Ubuntu One, and as such it is used far more by Windows and Mac users, Windows being the main target of viruses/spyware/keylogging I'd suspect that it would increase the probability of someone being able to "hack" their way into Dropbox files through a Windows operating system. Having said that, this is just my opinion, and I do use both because I don't put any information worth stealing online (bits of code available on the web don't interest people) and as a reminder bank details for example are not recommended to be stored in cloud storage, however useful it could potentially be.
For my sources and more specifically information you may want to read in more detail to make up your own mind: