When you create a Git or Mercurial repository, you actually do it in the same folder as the source files that you're putting under version control. So the repository is contained in a hidden folder called '.git' or '.hg' underneath that source folder. Finder doesn't display hidden folders by default, but it's there; if you want to quickly jump to your source folder in Finder, you can do it from the Actions Menu > Show in Finder, or you can also do Actions Menu > Open In Terminal, where 'ls -la' will show you the hidden .hg or .git folders. This is standard behaviour for Mercurlal and Git.
As far as backing up, the best way to do that is to push your changes to a server. If you're looking for convenience, Bitbucket allows you an unlimited number of private repositories for free (up to 5 users), so that's a good way to make sure your projects are backed up: https://bitbucket.org
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