Imagebased backups will allow you to create an exact image of what your harddisk was at the time of the backup. If you restore the image, not only do you get your files back, but if that partition also has your windows installation, your windows installation will become that of when the backup was made.
Why is this important? If your windows does not start anymore, you can go back to that specific point easily.
Filebased backups don't have this luxury. Only the files are backupped. However, the biggest difference between file backups and imagebased backups is when you backup often. An image based backup is usually a full backup, and thus it always takes very long to make. A filebased backup can skip backing up all files that are already in the backup and only backup the changes (differential/incremental backups).
So depending on your needs, you need either an image based backup, a filebased backup, of both.
If you need to be able to restore windows to an earlier point, you will need an image based backup. If you need quick backups, you will need a filebased backup.
That said, there are backup solutions that can do both in the same program. They create images, but can make incremental backups too, and they often also can extract the files from the image.
In most situations, filebackups are always used, and the imagebased backup is supplementary.
You would typically use an imagebased backup in case you are going to make drastic changes to your windows install and don't want to risk failure (you can always go back to before you started). A filebased backup would typically be used to ensure your most important files will always exist. These can be your office documents, but some have their photo's only in digital form nowadays and then of course they are very precious.