Time Machine can be used without an external hard drive in Lion, via new 'Local Snapshots' feature

Apple has really touched every aspect of of the operating system for the Lion update and we’ve discovered a major new feature for Time Machine: ‘Local Snapshots’. Local Snapshots allows you to use the helpful Time Machine backup feature without an external hard drive and instead makes a local snapshot of all file changes. Your Mac will take these local snapshots every hour and store them on your Mac’s internal hard disk.

Apple warns that Time Machine should really be used with an external hard drive, as its true purpose is to protect your files when your local disk malfunctions. This local snapshots feature is important if you lose a file while on the go, and we presume it works hand-in-hand with the new “Versions” feature in Lion, which allows you to view the evolution of your documents.

If you go for a certain time without being connected to your external hard drive, once you connect your computer will copy all of the local snapshots as backups onto that external drive. (Thanks, Netzhuffle)