What are the files in the .backup folder for and do I need to keep them or can I delete this folder?
Why does this folder keep getting larger when I install a new update to ISE software?
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 (for example, a service pack, IP update, etc.) all of 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 might have to uninstall and reinstall ISE software if you end up having problems after a new update.