Until the end of the Age of the Walking Dead (see World History for more information), the souls of the dead lingered where they died. Properly buried, they rested quietly for centuries. This vast mass of souls, accumulating since long before the Dawn Age, became a potent pool of energy. After the fall of Kazelthume, warring states learned how to harness these energy and raise vast armies of undead. These undead soon overthrew their living lords and became a force in their own right that threatened to destroy all sentient beings in the world.
The gods and mortals joined forces to defeat this grave threat. Human King Algor lead the mortal forces, later founding the Algorand Empire. The gods assisted the mortal armies and sometimes fought with them but their greatest assistance in this perilous age was to settle the fate of souls. From this time on, the minions of the gods escorted the souls of the departed to either the underworld or to the halls of the gods.
The underworld awaits nearly all deceased mortals. It is a cheerless, gloomy place, literally below the main disc of the world on the second, lower disc. Here, the deceased souls fade away until they join the pool of life energy from which all newly born mortal creatures gain their souls. Proper burial can speed a soul to the underworld and prayers and ritual can then speed it on to new life.
Halls of the Gods
A few worthy souls find a different path. The gods select some to serve them in their halls in the high mountains. Here, they are bound to the gods but gain a physical body that matches their mortal body in the prime of their life and that rapidly heals any harm that may befall it. These risen dead serve the gods, in battle if necessary, for an age or more before ultimately also returning to the pool of life for rebirth. (See here for some of the gods and how they select souls.)
Except in some rare cases, when a soul joins the pool of life, it does not retain its integrity. Its memories and personality are lost forever. Its energy is mixed with the energy of countless others. The new souls formed from this pool have a little bit of all the souls that entered it and therefore a new soul do not represent the true rebirth of a specific individual. Nonetheless, nearly all traditions and religions speak of this process as rebirth.
The Exceptions: Undeath
There are some souls who avoid the Underworld and the Halls of the Gods. These souls linger at the site of their death, clinging to life. Souls that can linger until the next winter solstice can then rise as undead, especially if they are not properly buried. See the Making of the Dead for more details on this process.