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Apps Backward compatibility

You're not getting the term backwards compatibility wrong. It means that any higher OS can run older OS games. That is true most of the time, 2.3 will run most 1.6 apps fine.

In your case, the app is MADE for 3.0 so most likely will work on 3.0 and higher. But it will never work with a lower Android version.
 
Backward compatible (or sometimes backward-compatible or backwards compatible) refers to a hardware or software system that can successfully use interfaces and data from earlier versions of the system or with other systems. For example, Perl, the scripting language, was designed to be backward compatible with awk, an earlier language that Perl was designed to replace.
Backward compatibility is more
easily accomplished if the previous versions have been designed to be forward compatible, or extensible, with built-in features such as Hooks, plug-in, or an application program interface (API) that allows the addition of new features.
The term backward compatible (notice the "b") is sometimes used to describe hardware or software that is designed without regard for compatibility with earlier versions, causing the two versions to fight (or combat) each other. In this case, the two versions cannot share data easily and may have features that cause errors or crashes when they are installed on the same computer, often because the computer does not understand which version is being referred to. Even if the earlier version is removed, remaining vestiges of it may cause problems in running the newer version.
 
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