Backing helps fill up the reel spool so the coils aren't as small - helps minimize memory (I think).
You are correct Scott - to a point..
Actually it is there to have enough line left on the reel to fight a big fish after the fish has taken all the fly line - usually 80-100 ft.
Seldom gets into the backing on most pond fish except a big HSB, GC or maybe big northern pond species.
Cheers,
George