Yes - backgrounds offer significant benefits during play, but change according to the story, not expenditure of XP
I can’t speak to first edition specifically, as it’s the only one I’ve not read or played, but as far as I am aware the broad usage of backgrounds has remained largely the same between editions (though see below).
Most backgrounds certainly matter in the way you mean: like other traits, they represent aspects of a character in a mechanical way for rules purposes. Many can be rolled, or affect the difficulty of other rolls, so the dot rating definitely matters. But unlike most other traits, they mostly represent things external to the character (like Allies, Contacts, Kinfolk, Resources, Rites, Totems etc) and so mostly out of their direct control. The exceptions are inherent traits that don’t fit anywhere else (e.g. Pure Breed), but these are generally not something the character can acquire or change themselves.
Once play begins, backgrounds can increase - or decrease! - but this occurs at the Storyteller’s discretion, based on the events of the story. The 20th Anniversary Edition of Werewolf: The Apocalypse (W20) puts it like this in the Traits chapter (on page 135):
Most Backgrounds improve as a result of the events in the story: making new contacts, discovering new parts of your pack’s prophesized fate, or landing a significant financial windfall. As such, they cannot be raised with experience points. The Fate and Totem Backgrounds are
the exceptions to this rule: the only way to increase them is through experience points.
So yes, the Allies rating would increase - but they wouldn’t pay points for it. There’s more on how this works in Chapter Six (page 244):
With two exceptions, players cannot increase Background Traits with experience points. Only Storytellers can increase or decrease Backgrounds through the course of play. If the character gains a new (Storyteller character) friend through her ecological charity work, her Allies Background increases. Vice versa, if a key friend is killed
by a Pentex First Team, the Allies Background might need to be decreased or removed altogether.
If the player wants to actively increase a Background, you should work with them to provide opportunities in gameplay to try to do so. It can be as simple as holding a job to increase Resources, or as complex as a series of spirit quests to find new Ancestors. You don’t necessarily have
to provide a checklist of tasks for players to accomplish in order to get the desired increase, however — it all depends on the Background in question and the current state of the chronicle.
Rites is a bit of an exception - it mechanically represents only that a garou has already spent time learning rites prior to the chronicle beginning. Rites dots don’t mean anything more in play. But it still serves an important function of allowing a player to dictate through points spend what benefits their past has left them, turning their backstory into a mechanical benefit.
But it’s your game, so you can allow it
Different Storyteller games across editions have not always taken this path; Mage: The Ascension 20th Anniversary Edition notes that the previous Revised edition explicitly allowed the purchasing of Backgrounds with XP, while the equivalent edition of Wraith: The Oblivion offers optional rules for doing so. Many games have at least a few specific Backgrounds which are exceptions like Totem and Fate - usually traits important to the character’s development, like Avatar for a mage. So you can allow it if you want, and it’s a fairly common houserule.
Just be aware that unlike other traits, most Backgrounds are not something you can just put hours into and expect to reliably increase, so games don’t offer training times and may not give a specific experience point cost for Backgrounds. Talk to your Storyteller and fellow players about how you’d all like it best to work at your table.
