Backups are very important, and for any reliable XMPP service Prosody should be a part of your regular backup routine.
There are two things you should care about primarily: your configuration and your user data.
On most systems the correct paths will be:
Both of these directories may already be covered by your system backups (/etc and /var/lib are both standard directories for configuration and data files). Remember that the paths may be different on your platform, depending on how you installed Prosody - so do check.
If you do not use the default storage, e.g. if you use an external database, don't forget to also back up that database regularly. We recommend that Prosody's standard data directory should still be a part of your backup routine in this case.