You cannot do that because some files are in use. Some files are also special files (like .lnk to floppy drive etc).
The general policy in big companies like the one I work for is:
1. In case of failure, software is reinstalled from an image or original install media.
2. Data is stored on servers where it is regularly backed up (it is sys admin's responsibility).
3. Any data on the PC is responsibility of the person working on that PC.
In your case, you can use backup program that comes with Windows 98, but there are better ways. In the case of failure, you would reinstall Windows from original media (CD) and then restore from your backup. In your case this is somewhat problematic because you don't have the CD. Microsoft will not give you another one. In fact Microsoft will not work with you directly, but thru their dealers and certified partners.
What you should do is make an image of your system. To do that, you would need software. One of the most popular is Symantec Norton Ghost. You could go to their site to learn more at www.symantec.com . Norton Ghost was available as trialware in the past.