We've been using Amazon's Elastic Block Storage (EBS) for some time now. In a nutshell, EBS is like a "hard drive for the AWS cloud". You simply create an EBS volume and then mount it on your EC2 instance. You then read/write to it as if it were local storage. For a good intro to EBS, check out this RightScale blog post.
The snapshots feature of EBS is especially handy as it allows you to easily backup the data on your EBS volume. AWS provides an API that allows you to request a snapshot. The API call will return immediately and then, in the background, the backup will occur and eventually be uploaded to S3.
While the snapshots feature is useful, one of the issues that you will likely run into is the snapshot limit. A standard AWS account allows you to have 500 EBS snapshots at any given time. After this limit has been reached, you will no longer be able to create new snapshots. So, you will need to have a strategy to 'prune' (remove) snapshots.
I wasn't able to find any scripts for pruning EBS snapshots on the web so I ended up writing a little Ruby script to accomplish the task.
You can get the script here. It requires the excellent right_aws ruby gem.