From the Store description:
Contacts + Message Backup app is a Settings app that enables you to make backup of all your contacts (in VCF format) and messages (SMS & MMS including attachments) to SD card (in XML format) for later restore to same or another Windows Phone.
Backup is stored in 'backup+restore' folder on the SD card.
Interestingly, this plugs directly into Settings, adding a new function to the existing list of options:
Personally, I view SMS and MMS and transient and immediately copy out anything of permanent interest, but I know that some people like to use their SMS store as a vital repository of information - or perhaps sentimental missives from loved ones, so this should be of interest to them.
Anyway, you can grab this new plug-in here in the Store.