I've never heard anyone say "back in the day". Did you mean "back in the days of..."? If so, then it's perfectly grammatically acceptable. For example, you might find it in such statements as "Back in the days of music hall, it was common for whole families to be performers." The phrase is simply a way of indicating that it is a reference to the past.
I've heard the expression 'back in the day' used. I think it tends to be used more in America and I've more often heard it used at the end of a sentence, like 'You used to see a lot of them, back in the day'.
Check out this website if you want to know exactly when 'back in the day' was for your age. Apparently, for me, it was 1986 - 1990!
http://www.happyrobot.net/robotchow/backintheday.asp
Sorry this isn't an answer, nyukx3.
Have just clicked on the link posted by boognish76 and got five different time spans for my personal "back in the day"...
Oh well. I reckon if you don't know when it was, you probably shouldn't be using the expression.