Upgrades/downgrades requires transferring all your data from one server to another - so that means downtime. The bigger the server, the more downtime in transferring.

As for backups, Linode backups seem to get a bad reputation. They do take a snapshot of a running instance - but reports from the forums indicate that they regularly fail, leaving you with a missing backup at some points. The only way of restoring a backup is to deploy that backup as a new server.

I'd recommend avoiding Linode backups and doing your own.