The .backup folder holds the information necessary to roll-back an installation of a Xilinx software product to a previous version. Each time a new update is installed (i.e. a service pack, IP update, etc.) all the old files that get replaced during the update are saved in the .backup folder. That is why the folder gets larger each time you update ISE software, as it is storing another batch of old files. This allows you to roll-back your installation if you run into problems.
You can delete this folder and it will not affect ISE at runtime, but you will no longer be able to roll-back your installation and you may have to uninstall and reinstall ISE softwareif you end up having problems after a new update.