Simple answer...backstory is everything that's ever happened to your character before they set foot into the story. Some of that history will be needed to understand the story at hand, but most of it won't. A lot of the needed stuff can be inserted later, and doesn't need to be explained in the first chapter or two.
Beginning writers (and even some not so beginning) have a tendancy to want to tell the reader everything about a character right off the bat. Most times all that info isn't necessary, and often lessens the tension and interst of the story because there's no mystery about a character anymore. Tossing out an interesting tidbit and making the reader wait for it is a good way to keep them reading.
Backstory is tricky because sometimes its bad, and sometimes it's interesting. There are no rules to know which is which however. You just develop a gut instinct for it.
I have found that backstory that stops the story or goes off on a tanget to what's going on is often bad and can be cut. If it sounds like an explaination, reconsider putting it there.
Backstory that deepens knowledge of what's going on, or sheds light on the events so the reader sees more to it then they did before, often works.
Backstory dumped on a reader that sounds like the author saying, "oh by the way, you need to know this" is usually bad.
Backstory inserted using the character's voice and readers learn as much from how the POV tells the backstory as the info itself, is often good.
Backstory added because your beta readers asked for it, is usually good

That seems to be the best test I've found on what to keep and what to toss. I try to keep backstory to a minimum, and when readers ask for more, I know what they find interesting and elaborate more in those areas.