I am using the pgbackups addon from Heroku and trying to figure out what the best option is for me: http://addons.heroku.com/pgbackups
I want to basically backups to happen on a daily basis, so I am basically trying to do the daily automatic backups, retains 7 daily backups, 5 weekly backups.
The key question I have from all this is ... if I add this addon, does Heroku itself take backups of my DB and store them appropriately?
Or do I get some sort of access to a dump of my DB, which I can then store on my local machine & Dropbox?
Heroku fully manages backing up the database daily for you without you having to do anything.
All backups (whether manual or automatic) are available for you to export. You can get a list of those by typing this at the command line:
$ heroku pgbackups --app your_app_name_goes_here
You can find more information on restoring or exporting to your local machine here: http://devcenter.heroku.com/articles/pgbackups