Been there done that. A couple of times. There are TONS of stuff about this all over the web.
You can achieve it by using nothing more than XCOPY from a DOS window or COPY PASTE from within Windows95. You can achieve it with numerous shareware, freeware or full blown products that streamline the process.

There is no *need* to re-install every application, although every so often and depending on how many apps one installs and then un-installs, it is always a great performance booster.

This is the "free" way of "cloning" a Win95 drive :
-install the new drive as a slave, partition it, format it and reboot.
-assuming C is the old drive and D is the new drive :
-from an MSDOS *window* enter XCOPY32 C:\*.* D:\ /E/F/H/R/K/C
-from an MSDOS *window* enter SYS C: D:
-shut down and swap the drive cables
-change the jumpers to make the new drive master and the old drive slave
-reboot 

Re-arranged desktop icons is all you should notice. It's also a good idea to do a "minimal" boot of Windows95 when you're about to do the XCOPY. i.e nothing necessary loaded or running. Better safe than sorry, so run with this configuration for a while before deleting, removing or formatting the old drive.

Good luck

Costas Anastassiades.

Disclaimer :) I don't believe this is Microsoft's way of doing things. I found a reference to a knowledge base article that suggests fully installing Windows95 on the new drive (so any other new HW is configured) and then using Microsoft Backup to do the copying ....