With the backend block in the backend.tf file commented out...
tf apply to create the S3 bucket and Dynamo table
Uncomment backend block
Replace bucket with output from previous apply, bucket name.
tf init
It will ask if you would like to copy state, select yes.
Project setup
Move into the project dir cd project
tf init
tf workspace new dev
tf apply -var-file=./vars/dev.tfvars
tf workspace new test
tf apply -var-file=./vars/test.tfvars
After adding lambda resources, needed archive plugin terraform init -upgrade