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Hi. I thought I would create this specific discussion, because I have heard engineers say "never back annotate!". I am sharing some tips based on my experience with back annotating.
1. What is back annotating.
Back annotating allows a designer to set an organised physical location pattern on a PCB layout for designators. Normally you annotate the schematic and then import the design onto your layout. Back annotating imports the logically placed sequential annotations from a PCB layout back onto the schematic.
2. Why back annotate?
To make life easier for debug technicians and manufacturing staff, as well as the engineer who designed the layout in the first place. In other words, you can find components or test points on the phsyical PCB with ease rather than spending ages trying to find, for example, R23 which should be near R22 or R24. (And oh, R23 does exist at the other end of the board, but someone hid the designator, just to make your life difficult!)
Not back annotating may be a "It's someone else's problem" attitude from some arrogant engineers. Or it is simply due to ignorance on part of the engineer, or the project manager or management who are pushing to get the board out on an unrealistic deadline. Or it is laziness (I have seen a lot of that over the years).
3. What to back annotate
Back annotate components and test points at the appropriate times.
4. When to back annotate
Back annotate components just prior to the first BOM being released to another department, prior to your detailed design documents are written, or prior to the first external review. If you back annotate after this, your documentation will become almost meaningless. For example, R23 is no longer R23 but R57. You make the call, but make sure all the relevant stakeholders are in agreement. Then lock the component designators in. If you later then add or remover components just annotate them, but leave the rest alone. 
Most professional PCBs require test points, especially if there is in-circuit testing, or other requirements for manufacturing, testing and debug. Sometimes boundary scan and even AOI can reduce them. I generally aim for 100% test point coverage. Prior to the final design being released to manufacturing (ie: prior to test fixtures being built), the test points can be back annotated. Doing this does NOT affect the BOM. This is very beneficial step. (For non-flying probe ICT, avoid at almost all costs moving test points after the design is released.)
  
Which back annotation algorithm should I use?
Whatever is appropriate, depending upon layout. You might want to experiment with each that is available, and choose the one which provides the best solution. There is no hard and fast rule, but for test points particularly, X then Y may be better than than Y then X, or vice versa. Generally try to get Test Point 1 near the datum. With Altium, I think the algorithns are a bit simplistic. Clustering based upon connections might be a better approach.
In summary
Back annotation might not impress the chicks, but it might help you win friends in the industry.
Anyone else with comments, arguments or would like share ideas about back annotating, go for it!
cheers,