Hi there
So backspacing is the vertical measure from the mounting surface of the wheel (the part that touches the hub) to the lip. So you're right in thinking it affects how far the wheels stick out. The less backspacing, the further past the flares they'll stick out. Like you, I forget exactly where the break over point of how much backspacing is too much for a 31x10.50x15 tire, but I think at least for the short term you should be able to run them. Don't quote me on that but the only issue you should run into is possible rubbing at full lock. That's remedied by adjusting the steering stops or just not turning as far. When you bump up to wider tires I'd definitely get different wheels though.
As far as future plans, tire size is entirely up to you as far as how much you're willing to spend, and how strong everything else is. If you gear ratio is numerically high enough for your transmission, 33s won't be too bad to drive around on. But with that comes extra stress on the d35 and if you have numerically low gear ratios in your axles it will drive like a dog. Also, 33s are really the upper limit of that Dana 35. That said, many people run them and I know personally two people that had that set up and they were fine as long as they kept out of the skinny pedal and didn't install a locker in the rear.
So backspacing is the vertical measure from the mounting surface of the wheel (the part that touches the hub) to the lip. So you're right in thinking it affects how far the wheels stick out. The less backspacing, the further past the flares they'll stick out. Like you, I forget exactly where the break over point of how much backspacing is too much for a 31x10.50x15 tire, but I think at least for the short term you should be able to run them. Don't quote me on that but the only issue you should run into is possible rubbing at full lock. That's remedied by adjusting the steering stops or just not turning as far. When you bump up to wider tires I'd definitely get different wheels though.
As far as future plans, tire size is entirely up to you as far as how much you're willing to spend, and how strong everything else is. If you gear ratio is numerically high enough for your transmission, 33s won't be too bad to drive around on. But with that comes extra stress on the d35 and if you have numerically low gear ratios in your axles it will drive like a dog. Also, 33s are really the upper limit of that Dana 35. That said, many people run them and I know personally two people that had that set up and they were fine as long as they kept out of the skinny pedal and didn't install a locker in the rear.