The official quote from the manual-
Sets or gets the Backlash Compensation mode from either BACKLASH_OFF (0) to BACKLASH_LINEAR (1). When the backlash mode is set to Linear mode, whenever the commanded destination begins moving in the positive direction, a positive offset of the amount, BacklashAmount, will be applied. The offset will be ramped upward as a linear function of time at the rate specified as the BacklashRate. Whenever the commanded destination begins moving in the negative direction the offset will be removed by ramping downward toward zero at the same rate.
What it essentially means, is that when you move in the positive direction, the backlash amount gets added, at the rate specified by BacklashRate.
So to use some random figures, say you have backlash set at 1000, with a backlash rate of 1000.
Now you command a move of say 3000 steps at 1000 steps per second. As the axis moves at the set rate, it applies the backlash on top of the set motion rate*, so after 1 second, the axis has actually moved 2000 steps. After the backlash has been applied, the axis then continues to move at it's set motion rate of 1000 steps per second until it reaches 4000 steps, which if your backlash is set correctly should be the equivalent of moing 3000 steps.
If you then command another move in the same direction of say 1000, as backlash has already been applied, the axis simply moves 1000 steps, so the axis should of now physically of moved 4000 steps (or 5000 steps with backlash applied)
In reverse, the exact same thing happens, but things count down instead of up. So if you start at a physical 4000 steps (5000 with backlash applied), and command a move of 4000 to return to zero, as the axis starts to move, an additional 1000 steps will be added to the first second of motion to remove the backlash amount.
The idea is, that due to backlash applying no load to the drive system, it can be added quickly to motion moves, so that backlash is removed prior to the axis physically starting to move. The 1000 step example I used is very high setting for most systems, and in practical use a backlash setting that high will cause problems. Backlash is essentially a sticking plaster solution, and only really meant to handle very minimal backlash which can't be removed through other means.
Any large amounts of backlash where the tool can pull/push against the backlash, means that if you use a high backlash rate, you can miss steps due to a large amount of backlash being too quickly applied against axis load, however if you use too low a backlash rate, then the backlash won't be applied quickly enough during moves.