As noted, if you have multiple drives and have enabled folder redundancy, then there'll be a second copy of those folders on a different hard drive. WHS will notify you of the problem. Multiple hard drive failures can certainly happen. Files that happen to have both copies on the failed drives will be lost. Since WHS uses standard Basic disks, any files on functional drives can be easily copied elsewhere.
If the OS drive fails, you'll need to remove all the drives, replace the failed drive, and re-install WHS. You'll then have to copy your data files from the other drives to the "new" WHS server. Again, standard file copy tools can be used.
If only the OS itself has failed, you can do a re-install over the top of the old version without losing any backups or data.
The backup database (that keeps the backups of your client PCs) is not redundant. That database can be backed up elsewhere if you don't want to risk losing it. I've done multiple successful restores of my backup database to "new" WHS servers. There's a Microsoft whitepaper telling how to "back up the backup database".
As a file server, WHS is subject to the same limitations of any other file server. It needs to be backed up if you want to minimize the possibility of data loss. Folder redundancy appears to work well, though, so if you are willing to acceept the risk of multiple drive failures, accidental deletion, or malware vandalism, then folder redundancy is another option.
I and most of my clients use WHS only as a backup device, at which it excels. But we have lots of other file servers available.
