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You are correct, kind sir. Snapshots are not a replacement for backups.
A virtual server file will contain the data that's inside the virtual drive. The snapshot just keeps track of which bits are where, so you can load a snapshot if you have to restore the virtual machine, and it would place the files you right back where you had them. But in the case of a corruption or loss of virtual drive (say, by a failed hard disk error), you'll want to have a backup of the entire virtual drive to perform a restore. Yes, by all means you should be using the snapshot feature; but you also have to make backups.