well when you go to power on your phone and hold x you get the default recovery that has the install update.zip, reboot system and factory reset... which basically just allows a few basic operations incase you make mistakes on the phone..
with .99.2b my menu is as follows
reboot system
wipe data/factory reset
wipe cache
mount options
-mount /system
-mount /data
-unmount /cache
-mount /sdcard
-enable usb mass storage
Backup/Restore
-simple nandroid backup
-simple nandroid restore (latest)
-advanced nandroid backup
-adcanced nandroid restore
Install
-choose rom from SD car
-allow update.zip installation
-install /sdcard/update.zip (deprecated)
basically you need the modified recovery to flash roms of 2.1 and modified 2.0.1 as they are mostly all "nandroid backups" but seems now some of them are actually becoming update.zip installs and rom installs from .tar so it does go along with rooting as its our main source of rom flashing and backing up our own personal setup of that rom incase we choose to go back to a previous rom/setup.
also heres the
http://www.sholes.info/ website.. incase you want to read more of the details in his own words of the recovery images and his personal made roms.