PAF's active data files use file names ending in .PAF (When you use File > Save as, it creates a new file with a name ending in .PAF, likewise if you use File > New.)
PAF's backup files use names ending in .ZIP This is a compressed version of the .PAF file. So when you use File > Backup, to create a backup, the resulting file will have a name ending in .ZIP and it will be much smaller than the corresponding .PAF file.
(ZIP is a popular format for compressed files and archives of all sorts, so most files with names ending in .ZIP have nothing to do with genealogy.)
When using File > Save As or File > Backup (etc.), you can choose the name and location of the file you create. Windows may default to the location previously used, but the drop-down menu allows you to browse to any drive and any folder.
Some of your backups need to be stored on external storage media in order to guarantee they survive when your hard disk crashes.