Sounds like you understand it pretty well to me!
Flashback is when the laser cuts through your material and then bounces back up from the honeycomb tray to scorch the back of your piece. The paper behind it can absorb the extra laser energy and protect the wood.
This is why you want to test your settings to use just enough power to reliably cut through the wood, and not much more. Generally, too much power leads to excess flashback and charring on the cut.
If you’re not familiar with it, here’s my test method, check out #6: