What's the best way to restore from an earlier Time Machine backup on a MBA M1?
AFAIK there is only one way. Follow the instructions after selecting "Restore from Time Machine" in Recovery.
Time Machine backups in Big Sur are Data volume only so it will lead you to reinstalling the System Volume by download and migrating from the TM backup you select.
You do have a choice of doing the migration with Setup Assistant at the end of the install, or doing the migration later with Migration Assistant from the Utilities folder. I have only tested the Setup Assistant way.