Backups are compressed, that’s what the .tar.gz extension means. It is basically .zip for UNIX:
That’s a 742 MB backup that is compressed into a 415 MB file:
It does include uploaded images, if you extract it:
The uploads folder is 314 MB across 6,947 files and 116,168 folders (!).
You can get smaller backups by opting not to include the uploaded images as well, but it won’t be a complete archive of the content (text and images) that makes up the topics on your site!
Remember images are not very compressible. But text is. If I compress just dump.sql alone with 7zip it goes from 339 MB to 60 MB.