The past is a part of life, and everybody has one. In fiction though, that past isn't always relevant, even if it is interesting. Readers like to see a story moving, and stopping to explain a character's history tends to bog a story down. Too much backstory is also high of the list of why an agent rejects a manuscript, and many advise to cut all of to from the first 50 pages.
A bit extreme, sure, but more times than not the backstory hurts rather than helps a story. But with a little forethought and revision, (okay, sometimes a lot of revision) you can make your backstory flow seamlessly with the rest of your prose.
What Do They Know?
How many times during your day do you think about your past out of the blue? Or bring up painful topics you’re trying hard to avoid? Odds are not very often, but bad backstory has characters doing it all the time. To avoid this, decide what that character would truly think about and share at that moment. Unless something happened to trigger that memory, they're more likely to go about their day doing what they do. If you stay inside the POV’s head, you’ll be able to see life as they do and include only what’s relevant to that scene.
Readers Don't Want to Know
Readers actually don't want to know everything about a character's past right away. Tell them too much too fast, and there's nothing for them to discover as the story unfolds. That equals a boring story, and who wants that? Readers want to be surprised. They want to wonder why your protagonist is scared of bright sunlight (when he's clearly not a vampire of course). This wonder will help hook them and make them want to see what happens next.
A handy rule of thumb for dealing with back story is to ignore it during the first draft. Stick to the story at hand, and after it's done, go back and read your scenes. Ask yourself: Does it make sense as is, or is more information needed to understand what's going on in that scene? This is key. It might be good information, or important information, but if it doesn't help that scene, save it for later. You don't have to tell it all at once.
Put it in the Background
A good way to deal with back story is to background it. You might want to tell readers about the terrible past of your protagonist, how he spent nine years underground in a Boramese prison, but instead of blurting it out (or worse, shoving in it somewhere it doesn't really fit), think of the things that might have affected your protagonist because of that experience. How might that change his behavior in the scene? Is he extra sensitive to the light? Claustrophobic? Very good at getting around when he can't see well? By backgrounding your backstory, you can flesh out your characters and show their history without stopping the story to explain it.Better still, you leave enough tantalizing hints that the reader eventually wants to know the whole story.
It's Not About the Character's History
Backstory isn't about the character's history. It's about the experiences that shaped their lives and made them act the way they do. Backstory affecting motivation feels natural because it has a place in the story. It matters to the character and to the things the reader cares about. You want to mention the stuff that's driving them to act, not just stuff that happened in their past. Pick what's important both to the character and to the story itself.
To determine what backstory to use, ask...
How does it affect the current scene goal?
Knowing this can help you decide what aspects of your backstory to reveal to the readers. The bits that actually matter, not the full history that doesn't advance the story.
Were any of the scene's characters involved?
If so, what was their role? How do they feel about it now? How does it motivate their actions and choices now? If they're not playing as role in the scene, why add backstory about them?
How does the POV character feel about it?
If your POV character wasn't involved (or didn't know about it) odds are they're trying to figure it out in some way. That might even be the goal of the book or a subplot. What do they know? What do they think they know, but have wrong? What parts are they trying to solve, but uncover something totally unexpected?
Backstory gets a bad rap, but when you think about it, it's the motivating factor behind your characters, and characters are what drives your story. You need that backstory to create rich and proactive characters.
How much backstory do you write in a first draft? Do you figure it out as you go along, or plan it beforehand?