Does Time Machine do an image backup or a files backup?

TM is a file type backup. It does however backup image files.

If you asking does TM create a .dmg or similar, then no.

The OS is not a part of the data set.

What iOS files specifically? TM pretty much gets it all but the OS. Some unnecessary files are skipped, but that has no affect on restoring the data, setting, apps and etc.

I don't use TM, but from my understanding you need access to another Mac in order to use the TM app to access those files. AFAIK you cannot use the Finder or non-Apple OS to traverse the TM backup drive for those files.

What iOS files do you have on your Mac that would need backing up?