Assuming that D drive is a hard drive some kind, then yes, you can use that. It should show up as an option when you setup backup. If D drive is an optical drive, that's more complicated.
Backup preserves your files on a hard drive other than the one that Windows runs on. System restore keeps track of changes to your system and can roll them back. Take these scenarios:
You install a driver that causes Windows to not boot. System Restore will almost always be able to fix this. Backup won't help unless you have to reinstall Windows and lost all prior data.
Your hard drive dies and is unusable. System restore won't help you. Backup will allow you to get your backed up files back once you've installed Windows on a new drive.
You accidentally delete a specific file or it gets corrupted. Backup will help you, system restore won't.
Basically, if your hard drive's okay but Windows is screwed up, System Restore will usually be your best bet. If your hard drive or specific files are toast, backup will basically be your only hope.