Flashbacks are one of those indispensable writers’ tools that tend to alternately get encouraged and discouraged, depending on whether or not they’ve been overused and abused recently or not. They’re a way of slipping the reader back into the past of the story, so that a particularly important incident or incidents from the characters’ backstory can be written as a fully dramatized scene, rather than merely letting the characters talk about the incident or summarizing it in narrative.
One medium-common use of flashback is during the Big Revelation just before or after the action climax, when everyone has known for much of the book that something dire happened on that fateful night twenty years ago, but no one knows exactly what because everyone who was there is thought to be dead. And then one of the heroes (or, sometimes, the villain) reveals that he was there. “Let me tell you what really happened…” he says, and instead of a long explanation, the author cuts to the scene itself, with the speaker as the viewpoint character.
This can be extraordinarily effective, especially if the author has either a) built up to the revelation by dropping hints over the course of the novel, or b) dropped no hints, instead allowing the reader to believe the version that everyone in the story believes, so that the revelation comes as a total shock. For it to work, though, the revelation has to be big – something that changes the heroes’ perception of themselves and/or what has been going on all this time (“Yes, Luke, I am your father!”). Generally speaking, something like “Actually, she was killed by a shark, not by piranhas” is more a correction of the facts than a big revelation, and shouldn’t rate a flashback scene unless there’s something about the mistake that changes everyone’s perceptions.
What you don’t want to use flashbacks for is to cover your own mistakes and/or as an excuse to be lazy. If you write your characters into a corner, and you need for one of them to have some piece of equipment that they wouldn’t normally be carrying (whether that’s a butane torch or a mithril oven mitt), you don’t get to have the character flash back to her meeting with the Wise Sage on the mountain so you can show the Sage giving her the oven mitt or the torch, and then proceed with the story. You have to go back and insert the Sage giving the oven mitt to her in the earlier scene, all those chapters ago – and if that throws off the pace and the timing and so on, you have to fix those things, too. Or you cogitate for three weeks until you figure out some other way out of the impasse that doesn’t require backfilling anything.
You also don’t want to use flashbacks to create false tension or pseudo-cliffhangers – the kind of thing where the hero is alone in a dark, empty house and hears the door creak, then there’s a two-page flashback to a childhood incident in a dark house with a creaky door, and when we get back to the present, he hears his wife calling “Honey? Are you there? I’m back with the fuse!” This kind of thing annoys a lot of readers (me included), unless you’re writing parody and deliberately hamming up and undercutting assorted clichés.
Most of the time, you don’t want to flash back to an entire scene that the reader has seen in this book before, not even if you’re short on length and could really use the extra words. Padding never works. Having the hero remember a significant line or two from an earlier scene at a critical moment is about all you can usually get away with, though if you’re writing a bazillion-word series and you want to remind the reader of Book 5 of something significant that happened in Book 1, you may be able to pull off a verbatim repetition. Even then, though, most writers use a couple of lines and a pointed summary, rather than repeating the whole scene.
I should perhaps mention here that time-travel stories that loop through the same scene with characters at different points in their subjective lives are not doing flashbacks in that case. Also, while it is certainly possible to use flashbacks in a time-travel story, you had better know exactly what you are doing and be able to make clear to the reader which scenes are from the past that the character is time-traveling in and which are the past that he/she is remembering.
Used properly, flashbacks let you do all kinds of neat stuff with structure, timing, tension, pacing, and a lot of other aspects of a story (in addition to their most common use, which is providing crucial background information). Used improperly, they can bog a story down, annoy and confuse the reader, and generally turn things into an incomprehensible muddle. If you’re not sure you can do them well, spend some time working on them until you are.