For me, character creation is a bit of a holistic process. I'm able to come up with story ideas as I choose feats or powers or other character options, and those story ideas in turn inform other choices I make. Unless I'm making a quick throwaway character, I have a pretty developed background by the time I'm done.
However, I understand that not everyone is able to think along those same lines. It's become especially important for me lately to realize this, since I've been doing a lot of gaming with people who haven't gamed much, or at all.
To help with this I've developed a few ways or made a few adjustments to usual ways of thinking to help these people out.
First, I usually try to create a reason why characters are adventuring together. There are some great elements in my article on inserting the FATE system into Pathfinder, but even before that, I would have each player choose two other characters to have some sort of link with. In the future, I will be doing something similar, but in reverse. I plan on having a player choose two other characters, but have those two players determine what the link is. This will go around the table, and the only rule will be that you cannot choose a player whose character you already have a link to. If I start off with the players who are a bit shy or uncomfortable with this sort of thing, it should work out. It takes the immediate pressure off of them, and by the time it gets to the point where someone chooses them, they should have some good ideas to work with.
But what about developing backgrounds for individual characters? Some people just aren't sure where to start, so I've developed a worksheet with some basic ideas that allow the player to fill in the blanks. By the time they're done, they will have a nice stable foundation on which to build more ideas.
The worksheet is easily usable for any version of AD&D or any other game that uses a race/class combination. It's easy enough to adapt it to any system. A player doesn't need to fill in every blank, especially if it doesn't apply, but the more they add, the better.
As an added bonus, this can be used as a tool to choose Aspects if you are using my rules for putting FATE into Pathfinder.