I think you've got the process a little confused
What the command would do is create an archive, using the TAR archiving application, of the directory tree and then pass this onto the COMPRESS application
so that it creates a compressed archive file.
You don't have to compress it, however it would be faster to move a smaller file between devices, hence my suggestion.
It is an extremely reliable method for accomplishing what was requested.
As for the 7z format, I'm not familiar with this method as I would normally only use tools that are available on all UNIX platforms.
Hope this helps.
2) Why the need to Compress a backup and convert it to TAR (is it conversion that takes place?) Wouldn't it just work to just compress into i.e. 7z format?