OS X 10.7 Lion Ditches the Disk, Offers Cloud-Only Recovery: And what happens if your computer goes belly-up? Is there a recovery disk in the box? Nope. Apple gets around this by partitioning the boot drive and putting a utility called Lion Recovery onto it. When you have trouble, press Command-R when you start up and you’ll be booted into recovery mode. From there you can repair the disk, reinstall Lion or restore from a Time Machine backup.
I know what you’re thinking. What if the drive is completely dead?… [I]f you slot in a brand-new, bare hard drive, the Mac will boot into “Internet Recovery” mode. This connects to Apple’s servers and grabs a copy of Lion Recovery, and you go from there. This works thanks to firmware installed on Lion-capable Macs bought from now on.
The bad news is that you need an Internet connection to do it, and we all know that hard drives always fail at the most inconvenient moment. The worse news is that, even if you have an Internet connection, it’s going to take a long time to download that 3.5GB installer file.