Backstabbing requires:
*Your thief character to be hidden in shadows
*To use a thief weapon (no two handed swords etc, if in doubt stick to daggers and short swords)
*Approach the enemy from BEHIND before attacking with the character
And thats how you backstab
Pickpocket only works on non-hostile creatures (i.e. white circle). Simply select the thieving icon and click the non-hostile creature as a target.
And yes, after a backstab (whether it hits or not) the thief character becomes visible again.