honestly, i am not completely sure what the option under the settings actually backs up. never used it.
however, if you are using Wugs root toolkit, there is an option to backup user apps and its data to the computer. then once you backup anything on the SD card you want to keep, you can unlock the bootloader, Root, and restore the user apps and data all through the toolkit. then move all your SD card content back to the phone.
once you have root, use an app (i prefer titanium backup Pro) to backup user apps and data.
feel free to try the backup option in the settings, but i have no clue what it actually back up and where it backs it up to (the cloud or the SD card)