“...am I missing something”?
Here is what you do.
Some people above may have posted answers to this thread way too long ago, when there was no iTunes 10, nor iPhone 4, so their solutions may differ to how backing up an iPhone presently goes. Also, “sync" used to mean replacing all the stuff in your iPhone for what you had in your mac, thus your iPhone could be completely erased, depending on your options. Not anymore.
It is always good though, just as a precaution (since you may still be running an older version of iTunes/iPhone) to follow these steps below in order to get your contacts from your iPhone nicely copied into your Mac -- if that is what you want to do:
(these are directions for iTunes 11.0 on a Mac OS X Lion or Mountain Lion. and iPhone 4.3.5 (or iPod Touch 4), but it may be very similar to other previous device versions; or while running iTunes under Windows OS)
BEFORE hooking up your iPhone to your Mac:
1 Launch iTunes ;
2. GO to iTunes menu and choose PREFERENCES;
3. Under PREFERENCES, check mark the box which says: “Prevent iPods, iPhones, and iPads from syncing automatically.”;
4. Now you can hook your iPhone up to your Mac;
5. On the left side panel, under Devices, highlight “YourName’s iphone” (where “YourName" is your name); 6. Click on the Info menu (on iTunes’ right panel);
7. Unmark all boxes (ie. Sync address book Contacts; Sync iCal Calendars; Sync Mail Accounts; Other; Advanced; making sure nothing is marked);
NOW, while “YourName’s iPhone” is still highlighted:
8. Press and hold the CONTROL key on your keyboard and click over “YourName’s iPhone,” then choose Back Up from the drop down menu that appears (this will back up your iPhone's most recent Data into your Mac);
Now you are safe -- if anything goes wrong from now on, you can still retrieve all your info by doing a restore, later on.
9. Once your back up is all done, and with “YourName’s iPhone” highlighted still, choose INFO from iTunes' application right panel, again;
10. Now, mark the box which says ”Sync Address Book Contacts” and also the box right below which reads, “All Contacts”;
11. Now, go to the bottom of the Info window and click on Sync.
It will then give you an information screen with the changes that will be made to your computers' Address book with as much detail as you like.
Let me know how this works for you!
In the future, if you are running the latest version of iTunes and iPhone iOS, you can sync as often as you wish when connecting your iPhone up to your Mac’s iTunes without having to back up your iPhone first, because iTunes will always back up your iPhone apps and other Data first anyway and then iTunes will sync.