These are really great ideas, thank you! I'll be looking into some small trees we could potentially plant on that side of the house.

I second Yardvaark's comment on the plants on the side of the house near the AC. They are absolutely too close to the wall. Whenever you buy plants pay attention to the mature heights and widths. If a plant will be 5 ft wide at maturity, plant it at least 2 1/2 ft from a wall or fence, otherwise it will lean. Fill in with annuals and perennials while it's still small. And while I agree with screening the AC, be sure to leave room for air flow around the unit. Crowding it with greenery will interfere with its efficiency.

Adding trellis to the open space beneath the porch is the quickest way to cover that void. See the picture below. You could paint it to blend with the brick or match the house color to make it stand out.

The terraced area off the back deck was an attempt to add level space for a sitting area. If it seems rocky it is likely because they put down gravel. Consider putting down pavers so the area can be used more often. The end of this terrace where the path goes down the hill looks like a good place for a fire pit if that interests you. The few shrubs along that terrace edge are a good idea to keep people from falling over the edge. Add more evergreen shrubs to make it safer.

It would be good to decide early on if you wanted to add more lounging space at the terraced area below the deck. Regardless if you do or not, you should fix the retaining wall by adding another section/wing that turns and extends the wall until it terminates at grade. If you don't, it's going to self destruct by eroding behind the wall ,at the end, and it will work its way farther and farther into the wall. I'm not showing it, but if you're going to use the terrace for lounge space, it would be good to add a railing along the drop-off edge of the retaining wall. Plant a strip along the outer 3' or 4' of the terrace if you want to conceal some of the wall and add some planting interest.

That's a good idea about extending the retaining wall, Yardvaark, I hadn't even thought of that. I was thinking about installing some pavers on there and making it more patio-like. I like the idea of putting a firepit there, but my husband thinks it's too close to the house. It's about 30 feet from the back door to the far end of the terrace.

I just took these pictures: I don't think it'd be practical to have the fire pit at the top of that hill (outside of the terraced area, if that's what mindshift meant) there because that's a trail head that goes down to the rest of our property:

I also took a picture of this crack that's in the retaining wall:

The area is filled with sand. Do you think it'd be a good idea to just replace the entire wall while extending it?

The crack in the wall is the beginning of retaining wall failure. There may be a fix, but it would require on-site, exploratory investigation. The wall should have internal, built-in drainage behind it. But we see a drain pipe in the picture and we don't know what's up with that. Replacing the whole wall is kind of like jumping from the frying pan into the fire. Usually, one wants to know if this MUST be done before one does it. Once a sign of failure appears, it's better to remedy sooner than later, as too much later may require jumping into the fire.

You might use an inexpensive, portable fire pit for a while and see if it you think it will work out on the terraced portion of the yard. I have a wood fire sometimes that I doubt is more than 12' from part of the house. But there is nothing flammable between the two ... just green plants and concrete walk and it is not burned unattended.

I meant that a firepit would go on the terraced area. The firepit would be nearer to where you have the bricks. I envisioned a paved area extending from the back steps across the terraced area to the slope. This paved area would be wider than the current gravel area. Where Yaardvark curved the paved area back in, I would keep the line straight. You could pour steps from this area to a second future terrace outside the bottom level door.

The crack in the wall is a problem. Retaining walls should have a firm concrete footing. This is especially important for areas with frost heave and for taller walls. Your current wall is at least 42" tall; anything taller than 36" may require anchoring into the hillside. Most states require walls taller than 48" to be designed by an engineer. Allowing a way for ground water to escape from behind the wall is also important. You need to fix this before you do any paving or planting.