Writer's
slang for the experiences of a
character (or any circumstances ) that take place before the action of the
narrative.
Backstory may or may not come out in exposition: it may not be important for the audience to know, but for an actor trying to psychologically understand their character, or for the writer to understand the motivation that will shape the character's actions in the story, the extra information may be helpful. Occasionally backstory appears in novels in appendices that give historical context, or a prequel that does the same (The Silmarillion as backstory for The Lord of the Rings); in films backstory may appear as a flashback sequence.
Likely derivation: "background" + "story."
Can also be used to refer to a "behind the scenes" story --the documentary story of the creation of the fictional story.