What’s good and useful about character background?
It makes you better acquainted with the character you’re designing. If you know where the character grew up and with what type of family, that automatically gives you a better perspective. You’ll find it easier to write plausible, consistent character reactions. For example, you’ll know why Irmentrude freaks out whenever she sees even a photograph of a spider (because her little brother used to put his pet tarantula on her face while she was sleeping), and you can present her adult phobia in your story with compassion and an added dimension.
The noir film that made a star of actor Alan Ladd was This Gun for Hire. He played a stone-hearted, sociopathic assassin who shoots a number of unsavory characters and seems only able to care for stray cats. But there’s a famous moment in the film when he shares an event from his childhood. The woman giving him foster care broke his wrist with an iron because he reached for a chocolate bar. And as he talks about that moment and other examples of mistreatment, his eyes shimmer with tears and we can see in his face that unwanted, abused child. The audience understands how he’s grown up into a violent, desperate, isolated man thanks to a brutal background. The film doesn’t condone his adult crimes, but it creates a depth to his character that he wouldn’t otherwise have.
What’s ugly about character background?
It can become a trap for the unwary writer. If you aren’t careful, as you write pages and pages of a background dossier you’ll then feel compelled to share all of it with your readers.
Hemingway’s old iceberg theory certainly applies here: just as only the tip of an iceberg shows above the surface, so should you share maybe 10% (or less) of what you know about your characters with your readers. Save the rest for your own insight and understanding.
Also, make sure you only devise enough background to help you fully know and understand your characters, especially their motivations. If you aren’t careful, you can spend too much time on background and never get around to actually creating the story. Let your plot dictate what their backgrounds will be. Again, with my Alan Ladd example: we learn only enough about his past to understand why he grew up to be a killer. No more than that.
It’s a matter of balance.