Basically, the thing to realise with the backups (either local or remote) is 
that they only contain references to your media, but not the media itself.  
Restoring a backup just means reinstating the sync preferences, and copying 
over the media that was there when the backup was made.  You need to have the 
media, itself, in your library.  Your backup provides any preferences you’ve 
set.

Local backups have the edge over remote ones.  For one, and most obvious, 
they’re encrypted with a key you choose.  Because they’re encrypted, they 
contain more stuff, like a copy of your keychain (with all your passwords).  
They’re much faster.  They can refer to media that’s no longer in the store.  
Because it’s using iTunes, media can be from outside the store as well.

You can use both.  If you turn on iCloud backup, you can still ask iTunes to 
make a local backup.  It’s in the File,Devices menu, or you can use the “Back 
Up Now” button in the settings for your device in iTunes.

I only use local backups, and only for rescue situations.  Data on my devices 
is disposable.  If it’s not visible in Finder on OS X, it isn’t worth keeping 
for me.  I’ve heard of too many disasters caused by incompatible restorations 
gone bad.  There are tools to explore backups, but at best I’d say they were a 
safety net and that you should never lose sight of your data in actual files.

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