So, OK, my theory of backstory...
a) Backstories need to be reviewed and worked on together between the player and the GM. This process improves a backstory's role in the game in several ways. First, it allows the GM to connect events in the backstory to the setting in ways that will naturally draw the player into the campaign. A GM can make a character's backstory vastly more important than a player can on their own. Likewise, backstories tend to imply certain things existing in the setting, and it's essential for the GM to approve of these additions to the game world both to avoid conflict between the GM and the player, and to ensure the GM is motivated to use the backstory. Players will want a GM to give validation to their backstory, and the best way to do this is get the GM involved in the process. Give the GM buy in.
b) Backstories need to harmonize with the backstories of other players in the group. It's a good idea for each PC to have a connection of some sort to at least two other PC's in the group. This makes it easier to explain why the group gets together, and why they stay together in the fiction. Without this, it's very common to see situations in the game where the party is obviously staying together solely because they are PCs, and not because there is a good in fiction reason for doing so. And further, if the tables enjoys low melodrama, then it works better to have some existing connections to spark RP. Finally, harmonizing backstories avoid problems where the motivations of the group are so radically different, that the most likely result of the group meeting is conflict. And speaking of which, the GM should absolutely reject backstories and character concepts that give the PC's mutually exclusive and contradictory goals.
c) Backstories are optional, but it's nice to have at least a few sentences verbal or orally regarding who the player thinks this character is, just so you have some idea how the player expects to play. Not having a backstory is in itself suggestive of a play style.
d) The more players you have in a group, the less important any backstory is and the more important the groups collective fore story is - however that fore story is determined (either by group agency or a GM plot). GMs should avoid making an entire campaign about any one player's backstory unless you have just one player, or you have buy in from all the players. Beware backstories that are actually about attempts to garner more than the player's fair share of spotlight. and make the game about the player. One thing I notice about most Indy games, is that they often implicitly involve the expectation of only 1-3 players in the group, because they explicitly involve the expectation that play will revolve around internal character growth and exploration of character. And that's swell if you only have one PC, but can be pretty darn boring and unreasonable if you have 8 players.
e) Beware a backstory that is an attempt to gain mechanical advantages not found on the player's character sheet. A backstory should explain the character sheet the player actually has, and not be the character sheet the player wants to have. A player should never be allowed to argue for mechanical advantages on the basis of backstory, and if a player wanted some advantage then they should have purchased it in chargen. If the player complains that they didn't have enough chargen resources to purchase everything in their backstory, then they don't have the backstory of the sort of character they are supposed to have - typically a novice and inexperienced character just beginning their real adventures. I find it is very helpful to design advantages that can be purchased (Traits or Feats in D&D terms) that provide solid mechanical advantages for characters that want to begin the game with some backstory related special feature such as noble rank, fame, wealth, civic office, heirlooms, contacts, mentors or other allies, and so forth. This tends to discourage power gamers from trying to game their backstory, since such features tend to become relatively unimportant in the long run (even a wealthy characters starting wealth will eventually be less important than the treasure that the party finds, for example), while at the same time giving more thespian minded players the opportunity to invent backstories that a GM might otherwise be inclined to reject. Further, if a player comes up with a backstory that implies advantages, but doesn't pay for the mechanical advantage, then you have a solid reason for telling the player why he can't leverage the backstory to get favors and why he should modify his backstory to explain that in the fiction.
