What is missing is how to reconcile these two sets of instructions. Hence the the tension I mention in the thread title. What if a player's idea for family background, or schooling, clashes with a GM's ideas about cultures and NPCs? What if a player's desire for his PC has a religious or cosmological aspect that contradicts the GM's ideas about the gods and the cosmos?
There's also the practical problem of how to connect all the goals and secrets and the like the GM is invited to elicit from the players, with the variety of adventure options the GM is instructed to construct.
The text is simply silent on all of this. A clear contrast can be drawn in this respect with, say, the Burning Wheel rulebook and even moreso the Adventure Burner supplement, reprinted in The Codex: they tackle this issue head-on, with lots of helpful advice for both players and GMs.
My interest in this isn't purely theoretical. I GMed RM for 19 years straight. In that time it was my go-to game. So I had to try and reconcile these tensions myself. I think I did a passing job of it in my first campaign, and a good job in my second. But part of what helped me in my second campaign was reading more widely about RPGing techniques, including relationships between backstory/setting, characters, and scenarios/situation. In the end I realised that, for me, the stuff about "starting the players with a rich background" was good and the stuff about "designing a campaign setting" was less helpful.