1) Time Machine now stores shadow copies on the internal Disk so you can browse backups even if the external disk or time capsule is not available.
2) Version Control feature : Lion takes snapshots ( in supported apps like preview,textedit,iwork 9.1 .. ) of each edited document, thus storing more then only one copy of any file which you can browse and restore to any wanted version later.
3) Lion creates a hidden recovery partition to desaster-restore the complete OS if it fails to start ( thus making DVD obsolete )
those fancy and cool features surely need space, hidden from the user and only visible "on demand" - so a permanent virtual safe storage container inside the physical disks visible file system makes sense.
Thanks for the quick response. Now for the new questions:
My iMac I plan to put Lion on has an upgraded internal HDD of only 500 GB. Since my family depends upon this computer for EVERYTHING, I plan to move all home directories to an 800 FW external HDD, image the remaining files to another, bootable, 800 FW externao HDD, test everything, and then repartition the 500 GB for 10.6.8 and Lion (I think I'll create a Boot Camp partition for Windoze 7 instead of using Fusion). I'm using an 800 FW external HDD for Time Machine now. Is there anything that will not work with the new way Time Machine functions?
Found out the hard way that Boot Camp needs one Mac partition to work. I did what you plan (10.6 & 10.7 partitions) then tried to run Boot Camp - no go.