It's pretty slick. My wife's old phone became inoperable, and she replaced it with another WP7 phone. Once she provided her Windows Live Account, presto!, all her contacts, calendar, mail were back.
Apps have to be reinstalled, but you will not have to buy them again. (Install Reinstaller to make the process easier.)
Photos is a different story, however. You must manually turn on the autosend to SkyDrive to save backups of scaled down resolution photos (scaled down for easier social media sharing). If you want full-res backups, you must sync with Zune Desktop.