Is there a way to create a copy, backup or a separate development environment?

By default, Catalyst creates Development and Production environment so that you can test the application with sample data in DataStore or any other services without worrying about the Production.

What are the best practices for handling data migration between development and production environments in Catalyst?

The service configurations such as DataStore's tables, Stratus's buckets, Security Rules, Authentication settings etc. can be seamlessly migrated (deployed) to the Production environment.

But data can be migrated from one environment to another only by manually transferring it programmatically.