You can also restore NAND backups with Decrypt9, but that requires 9.2 or A9LH, of course (and a mostly working system; in the case of A9LH all you need is for A9LH itself to be intact).
The NAND contains your system firmware, and a few config files (e.g. parental control PIN, NNID info, serial number, etc.). Keeping backups of it let you restore it as if nothing ever happened to your 3DS, same as if you backed up a failing hard drive. Most game saves and applications are stored on SD, yes, but others like DSiWare are saved and stored on the actual NAND itself.
Keep regular backups (and copies of those backups in the cloud like Mega or Mediafire, in protected zip files) and you'll go a long way if disaster hits.