Biff files:
The game stores most of the information it needs in files that are ordered in a way that it can find things easily. If you were to look in the data folder you would see a large number of files that end in .bif.
They have names like creAnim.bif (creature animation), items.bif etc. The items.bif file contains all of the items and their relevant information, the creAnim.bif contains a number of creature animations. etc.
Some very large mods (The Darkest Day, Shadows Over Soubar and Check the Bodies spring to mind), add their own .bif files to the data folder. This is because if the mods were to put ALL of the files they needed in the override folder, it would quickly exceed 10k files that take up over 1 gigabyte. When this happens your game will start running at about 1/100 of the normal speed. It sucks, trust me
But by turning a number of their larger components (all three .bif their .wav files and their area files, all of which take up a lot of space) into .bif files, they allow the game to find them without having to stagger through the override folder, speeding everything back up.
So, in the end, if you have the space, you might as well make a backup of your data folder, if not, don't worry about it.
Hope that explains things clearly.