I have three thoughts to contribute:
1) I have used gifts and faults with the Fudge Trait ladder and even Scale as part of the Gift/Fault. Things like Wealth, Area Knowledge, Reputation lend themselves to a scale (local, town, city, state, country, continent, planet, galaxy!) and the strength of that Reputation (Fair, Great, Superb,...). Often I play with a casual style where I use a "term" based scale (Well Off, Affluent, Rich, Filthy Rich, Obscenely Rich) for Wealth for example instead of traditional Fudge trait ladder labels. The addition of scale and/or a level ladder to Gifts and Faults helps add "Background" flavor for the character.
2) Adding "Traits" that represent modifiers to skills based on the written background one I have never formalize, but have used here and there as it makes sense for the described character's background. I have found player enjoy this additional element (it further help specialize and differentiate their character and reflects how the player envisions them) and I have enjoyed it as I often use character background element as hooks in the game. Is you background that you grew up on a farm, well not only does that get you a +1 to your animal handling skill, but if the adventure calls for the party to be approached by villages with a rumor or offer, I, as GM, make sure the villages that approach are a poor farming couple and they may just loose their farm if the PCs can't help them! Hooks like that generate commitment from the players!
3) When I think of potentially codifying Background, I think of thinks like, the locations where your character have lived, what your characters parents are like or do/did for work, friends you had growing up, your education (or lack of) for the culture and setting the character is in, and any notable events (personal or historical) that happen in your life. Was the 1st farm you remember washed away in the great flood of '09, your tween years were spent in hard times and hard labor as you family struggled to rebuild. You first crush/love, the daughter of a miller, moved away when you were 15. Now 20, you are adventuring in a dungeon, break down a door, and discover she is the evil sorceress behind the growing undead problem. What do you do? Is these background elements (here in item 3) that I find can lead to the best connects to player's characters.

Paul,

Maybe it's because my brain thinks a little more rigid that the Fudge system can be when I think of using traits with gifts like Mediocre Wealth, my brain immediately goes, "Well how and should I let them level this up?" That's why I think my brain broke it up into backgrounds as yet another method of tracking information about your character.

I know when I brought up the conversation of backgrounds with a player from a different system, it was much easier for them to see how characters are differentiated as this specific player is used to class type setup like Druid or Monk. Seeing that his fighter could be a character with a different background and how it was shown on the character it was a  "Ohhhh!" moment.

Thanks for the input! You and Ann are some of the people I know of who have been playing this system since its inception and I only joined in 2010. I really like reading your responses to the blog posts.

As I have had time to consider it, I really like the idea of a Background area that can be more structured (or extensive) than the limited "Character Story & Personality:" section on the classic Fudge character sheet.

I definitely agree that Gifts and Faults cover a very wide area of characteristics about a character. Having information quantified in some sort of Fudge terms (background driven bonuses/penalties to other character abilities, scaled or laddered gifts/faults that are part of the background or whatever) helps give players an immediate sense of their character.

Personally, I may make a much larger area for background and try something like:

Born in the starport of "New Hope" (area knowledge, New Hope: Good) on the frontier planet of "Liberty" (area knowledge, Liberty: Mediocre), Thomas Sing-Na-Wen grew up as one of two sons (gift: contact, Brother) of utility vehicle mechanic (+1 to mechanics skill). As part of a subsidized colonization program, his parents were poor (fault: poor wealth), with most of their income for their entire lives paying back the cost of the interstellar flight. etc etc.

I've used something similar - usually in the context of backgrounds providing a range of applicability for fairly broad skills, with penalties showing up for out of background stuff. For instance, in the game I'm currently running the PCs are all plains nomads who are now traveling the world. One of them was the trainee shaman, and so has various skills - e.g. Herbalism. Instead of having Herbalism: Plains Plants, Herbalism: Desert Plants, Herbalism: Wetland Plants, etc. there's just that herbalism skill, and it takes a minor penalty in new areas (until they are acclimated to anyways). Were I running a game where the characters were expected to be more skilled rather than being largely typical people, doing the same thing but with a bonus could work instead.

The big thing is the lack of strict codification. There isn't a list of biome specific skills, and political structure specific skills, and whatever else that one then checks against the background. Instead, the backgrounds are listed, and we all just fudge it.

Knaight wrote:

Instead, the backgrounds are listed, and we all just fudge it.

Well, that is that name of the game! 

While I do mostly Fudge modifiers from backgrounds, I do use scale in an number of background aspects or characteristics. The scales vary by the setting. In a Fantasy setting for example, the son of the Town Blacksmith may have Reputation: Good (Scale: Town) expressed as "As the son of the Blacksmith for the Town of Smithdale, you have always enjoyed a Goodly reputation. Folks are happy to help you out and you are well known". It serves to remind me, as GM, that the character can pretty much get whatever they want from the folks in his Town and areas around it. Even in another small town, where he is unknown, as people realize he is the son of a blacksmith, he will get a certain level of respect accorded the profession. However, in the Capital City, he is going to find that it will be rare that anyone knows his name or cares that he is a blacksmith. Influence, Contacts, Wealth, Area Knowledge, and probably a bunch more gifts/skills that are tied to Background all have a level or regional (area) factor associated with them. Any thoughts on a better way to codify such traits that apply at either some specific level or specific area?

You can, as noted above, always detail them like Herbology as Herbology: Smouldering Jungle, Hebology: Northern Thule, etc. but are there other ways?

I've been playing around with a distance scale recently (for something else, and at least partially because I was messing around with a gravitational field scale. It's the usual case of making mechanics, them getting out of hand, and eventually a much reduced version of them getting applied to a game once everyone else in the group is willing to play space opera again, and while some of the mechanics are maybe a little excessive in complexity the core ideas behind work. The big ones:

Distance can be given a scale. In this case the relevant distance is travel and communication, so call scale 0 a month's travel (it's not exactly measured distance in this case, but that's fine). Then a scale modifier needs to get involved somehow. I generally just do this by working out the lower end - call it an hour's travel. Going from an hour to a month with a 4 scale increment (to fit humans, with Terrible->Fair) is 5.22, call it exactly 5 for easy math.

Then, have a distance for reputation, or even individual parts of reputation, on the distance scale and tied to it. For things much closer or further, figure out the distance scales involved. If the reputation is specifically regional, this works.

In your case, it sounds a bit like a rural/urban divide more than anything, with progressively less respect as places get bigger (or wealthier). Population size and wealth can also be fit to a scale mechanic easily enough. Some of the other examples scale really well with distance though, with contacts particularly standing out. There's also room to have things scale by area or volume, which is where this post gets a bit heavier on the math. As has been established, scale is logarithmic, Distance Scale is basically a constant times the log of the distance. Area is a distance squared, the log of a distance squared is two times the log of the distance, and thus you can just double the distance scale value for something like Contacts if they're distributed around an area centralized somewhere instead of a distance from somewhere. If volume is instead more relevant (which is unlikely, but there are some space habitats), you can use triple the distance scale.