It covers the hardware. It covers failure only though so if you tie an iMac to a bungie cord and throw it down the stairs, you obviously won't get a replacement/refund. It's not insurance, essentially.
I bought a Mac Pro under HE store and didn't opt for the additional £58. I think it may be more useful in trying to get Apple to collect your hardware if it fails (rather than lugging it to a store) but it's a personal choice at the end of the day.