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I did a search and I couldn't seem to find any information on this. Is it possible to backup our database locally or to a cloud drive like dropbox? And is it possible to restore a backup copy of our database to a local in-house installation of the software?

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First you have to take the back up your database, after you install a new odoo, you will upload the database on your local host. To do this, just visit http://localhost/web/database/manager

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I was able to backup the database, but not able to restore it into a postgresql server. It produced a file called dump.sql. I tried using restore, which didn't recognize the backup. Then I tried importing and running the sql script which produced errors. What is the proper way to restore this backup.

Did you set up a new odoo on your local host?

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First I tried restoring to a PG server. I couldn't get that to work. Then I did a full installation of Odoo, and tried various different ways of restoring, such as installing on top of a blank database created in Odoo etc. All of them gave me errors. Is there a proper way of doing the restore?

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I had some initial problems backing up, but now it seems to work. Its kind of tricky. You have to be logged into the database, then go to account, then manage organizations, then it will let you backup to a zip file. To restore the .zip file, you can go into the database management of the in-house install and use the restore in there (don't unzip the file file dump, and don't use a posgresql db mgmt tool - only use the Odoo database mgmt, restore function which creates a new database). It seemed to restore successfully but you have to login using your odoo account, and not the user email address. It seems to work ok, but now I have a message on the top of my screen - "could not get content for /saas/trial/static/css/demo.css defined in bundle 'web.assets_backend" Would really like to know how to get rid of that message. 

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Your question's subject says " from the cloud to an in-house installation", in the description you mention "backup our database locally or to a cloud drive". 

It is not clear where your database is. If you are using Odoo's SaaS you'd better contact Odoo SA, anyway Odoo's backup is mainy Postgres backup, so once you are able to take a backup it is a file and you can save it wherever you like (local drive, cloud drive, ...).

About the second question: " is it possible to restore a backup copy of our database to a local in-house installation of the software? "

the Answer given by Şaban Yıldız is perfect.

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My database is in the Odoo SAAS/cloud system. I was able to back it up from the manage companies screen, but was not able to restore it. It created a file called dump.sql, which I wasn't able to restore to a postgresql 9.3 server. I am just trying to test the process to make sure that it can be done as an assurance measure.

AS far as i know Odoo SaaS use a custom version of odoo (in fact on github you see many branches for saas), so i am not sure you can install a backup from the saas version into a standard v8 installation. You should ask them, likely at least some minimum db fine tuning work is necessary, but i guess the procedure is not automatic or straightforward in your case.