
Out-of-map locations can work well for backstory only if those locations are mostly irrelevant on a large scale. Making up that you come from a village that is in an indeterminate "somewhere" is fine. Making up that you come from a city state hidden between the mountains borders traditional fan-fiction territory.
Now, you might say "But NPCs can't acknowledge the existence of my irrelevant town, either!" and think that writes it off as a thing you shouldn't do. However, because the town is irrelevant and not the size of a whole city state or nation, the fact that the world can't acknowledge it doesn't mean they don't exist. It just means they are too irrelevant to be noticed by the general population. That's why making up that you come from a village (or, for example, a Miqo'te tribe that lives in X region) is fine.
Even then, though, it is better if you can pick up an in-lore location for your backstory than to make one up. There might be some character concepts that don't work well with any of the in-game towns/cities/villages, but those concepts are kind of rare and chances are you will find a town/etc that fits the backstory already in-game. After all, we have quite a lot of in-game locations to pick from.
Now, you might say "But NPCs can't acknowledge the existence of my irrelevant town, either!" and think that writes it off as a thing you shouldn't do. However, because the town is irrelevant and not the size of a whole city state or nation, the fact that the world can't acknowledge it doesn't mean they don't exist. It just means they are too irrelevant to be noticed by the general population. That's why making up that you come from a village (or, for example, a Miqo'te tribe that lives in X region) is fine.
Even then, though, it is better if you can pick up an in-lore location for your backstory than to make one up. There might be some character concepts that don't work well with any of the in-game towns/cities/villages, but those concepts are kind of rare and chances are you will find a town/etc that fits the backstory already in-game. After all, we have quite a lot of in-game locations to pick from.