Formation of axial modes in the gyrotron backward-wave oscillator is examined in the perspective of optimum conditions for beam-wave interactions. Distinctive linear properties are revealed and interpreted physically. Nonlinear implications of these properties (specifically, the role of high-order axial modes) are investigated with time-dependent simulations. Nonstationary oscillations exhibit self-modulation behavior while displaying no evidence of axial mode competition. Reasons for the erratic frequency tuning are investigated and stable tuning regimes are identified as a remedy.