Pretty cool. For myself, I just work up the countries and cultures, the main NPCs for the setting and a bit of current events for the regions ahead of time. Then, at the first meeting, I sit down with the players and give them a brief overview of the races, countries and cultures. When they settle on a race and culture that interests them, I take each one aside (or more than one if multiple players make a similar choice), give them a bit more indepth regarding the race, culture, a few noteable people and organizations and a bit of current events. After that, I send them back to work out their background (including enemies, rivals, contacts, etc.) and how they know anyone else (if they do at all). They then bring back their ideas and we tweak them if necessary.
The results were:
Two of the players chose to be northmen, one chose to be a druid and the other a Barbarian. Recent events included abduction of the jarl's daughter by foreign wizards, who wiped out most of the druid's in their attack.
The druid's player decided that he despised the wizards. Furthermore, keeping with the druid's role as advisors, emissaries, and councilors, he was being sent to negotiate the daughter's release. Normally, someone more experienced would be sent, but the few more experienced druids needed to stay in case the wizards returned. This would be his first real test to prove that he was promising young druid everyone thought him to be.
Meanwhile, the barbarian player decided his character's goal was to become a legendary warrior and eventually Jarl. His character was secretely in love with the Jarl's daughter and wanted to marry her. With a chance to advance both his goals, the character volunteered to be the druid's bodyguard.
The other player's came from other regions.
A paladin in search of his sister ( a former PC in the campaign). He was an orphan with his sister as his only known blood relative- both were left on the temple steps as children. The head priest was like a father figure to him and his order and other temples dedicated to his deity served as allies and contacts. Furthermore, he had never left the temple before except to visit the city outside the temple walls so he didn't have enemies other than those of his temple. A vision led him to the island ruled by the wizards.
A knight who was the lone survivor of an ambushed party and was attempting to complete his assigned mission rather than return home. Upon finding his ambushers, he slew them and found a note leading him to the island. Back home he had a fiancee and a rival with both a romantic interest in the fiancee and an interest in the PC's land holdings. He also had an elderly father and a knight that trained him back home.
An orphaned rogue residing on the island ruled by the wizards. He had various street contacts . He had no real enemies although he tried avoiding the local watch. The player planned to have the thief attempt to rob one of them when they arrived on the docks. (he chose the barbarian, but got caught by the druid). However, when he learned of their plight to save the princess, he would offer help and information thinking he would be rewarded (it worked out perfect, because he could be a guide). Eventually, he would permanently team up with the party out of self interest (the wizards would use magic to learn his identity) and eventually become "reformed" through his time spent with the party.
Using the backgrounds made creating the first adventure a breeze. It opened on the docks with the rogue watching "potential marks" disembark from a ship. It was also a favorite since it didn't involve starting at an inn or being assembled and hired by a mysterious patron.
The backgrounds also made me feel free to allow the player's more freedom in choosing where they wanted to go rather than keeping them on rails. So, midway through the campaign when they wanted to return to the knight's homeland and warn his king about news they had learned rather than pursue the wizards. I went with it. Upon his return, he learned everyone initally thought him to be dead, but later information revealed him to be in league with the ambushers. Furthemore, his fiancee was engaged to be married to his rival, who was also about to gain the PC's landholdings. The whole session was discovering, who acutally set up the ambush and helping him reclaim his good name, fiancee, and holdings. Plus, a really cool duel at the end which the players had taken a real interest.
On the downside, despite the PC's warning to the king, the wizards were one step closer to their goal, because NPC plans and other events continue their path if nobody intervenes.