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RE: Telling the Stories of the Dead
Yes, the past is important. When the party go somewhere, this place didn't appear from nowhere. To merge a place with the plot and possible hooks coming from the PCs, that's the fine art of running a game. Most of the time I think about the best connections afterwards ;)
I think that one of the places people go wrong is that they have a lot of backstory (and you can craft an infinite amount of backstory), and they want that backstory to come out in a way that it never will in a normal story. You need the connection, the reason for it to come up, or it's just self-indulgence and self-gratification when you dive into it.