OK, tell me if am being patronising, that is not my intention.
Types of backup...
You may choose to backup your important stuff, like photos, music, documents etc....anything that you could not replace if you lost them.
You can also backup your entire system...called a disk image. This will include your operating system, programs and all your documents. So that in a disaster situation (say your HDD dies) you could restore your PC to exactly the same as it was when the disk image was made.
You can use Shane's program - Tweaking.com - Registry Backup to create a backup of your registry, so that after making changes to your system, you can restore the registry to a known good point in time.
USB thumb drives are not great for doing the first 2 types of backup, they are generally not big enough (as you have found) and they are not as reliable as an external USB HDD.
If you do not have one you should consider getting a good sized external HDD, they are pretty cheap now and use that to store your backups on. Look for a 1TB or bigger HDD.