Precious little is known of the beginnings of life in Ilyenor, there are two facts that are considered beyond doubt. The first race was the Elves, and they were followed thereafter by the Dwarves. The Dwarves claim that they were the first race to claw their way to sentience, but they were ignored in their mountain homes.
The Elves were the first to learn to bend magic to their will, and it was from this manipulation of the arcane that they began to assemble their society, lifting themselves from a hunter-gatherer or agrarian culture to one with an undercurrent of magical energy.
The Dwarves, on the other hand, being more practical and rooted in the Earth took to working the rock of the mountains, carving out a home for themselves in a quite literal fashion.
While the Elves and Dwarves were in the early stages of their societies a third race appeared. In the Shadow World in the city of Kirr there was a diminutive race doomed to live their lives as slaves to the powers that ran the city. Over time they were able to steal enough bits of magical detritus from their masters and use their growing knowledge of the dimensional machinery their masters wielded to make their escape. They managed to create a rift allowing them to escape to the Prime Material plane where they founded a city of their own. They continued to study the machinery and what they could of magic, trying to seal the rift behind them, but it continued to open wider and wider over the years following their escape. Eventually they founded the city of Ar-Neta, a center for research dedicated to trying to close the rift that had allowed them to escape, while all manner of beasts and horrors slipped through to the Prime Material plane from the beyond. Eventually a final plan was enacted to close the rift, but its execution caused a cataclysmic explosion that destroyed the city and the plain it stood on creating a tremendous crater that was rapidly filled by the waters of the Sea of Dreams. And so, the Great Bay was formed.
Some small bands of survivors from the freed-slaves of Ar-Neta managed to escape, homeless and without a direction they formed into three general factions. The first were the researchers, the technologists who understood the dimensional machinery. The second were those that thought that they should abandon the ways of their old masters and embrace the life force and nature of the plane they now called home. The third was vindictive and blamed the others and all life from the Prime Material plane for the loss of their home. As time passed the three groups underwent change (as all things do), the first eventually becoming the ancestors of what is known in the Unification Era as the Rock Gnomes, who sought refuge with the Dwarves of Mithlome. The second became the Forest Gnomes and took residence in the forests of Adrindest, becoming peaceful neighbors with the Wood Elves that lived there. The third retreated to the dark places and became self-consuming in their spite and hatred, over time they became the Goblins of the modern age and gave rise to the other Goblinoid races.
With their mastery over the powers of the arcane the Elves were able to multiply and spread through the lands of Ilyenor, eventually forming a huge empire across a significant portion of the world. This empire was represented in the Known lands through the city of Kulidair and the elves that inhabited it. It was in the third eon of the Empire that, after a period of extended strife outside the known lands, the Old Elven Empire began to collapse. Effectively cut off from their kinfolk elsewhere in the world the Elves of the known lands began to bicker amongst themselves. Following a period of civil war known as the War of Spells the Wood Elves parted way with the High Elves. Eventually the two races were able to rebuild their friendly relationship but with clearly diverging interests and religious systems the Wood Elves maintained their independence within the great forests of Adrindest.
The High Elves did their best to maintain the control of the known lands they had grown used to during the days of the Old Elven Empire, but following the Thirty Days of Darkness (and the self-sacrifice of the Mage-Queen Egiolin herself) found themselves unable to maintain the outlying territories they had once laid claim to. The Holy Dominion drew their borders inward eventually leaving them with only the Holy Dominion of Egiolin of the present day.
Throughout the known lands it is still possible to find the arcane-forged remnants of Old Elven settlements. Their reach is often found among the ruins of temples, roads, and the occasional dungeon. The original purpose of each lost in the river of time.
According to legend in the late days of the Old Elven Empire (before the War of Spells separated the Wood Elves and the High Elves) in the northern plains valley there was a magnificent silver spire, placed there by the gods themselves. The Drow, jealous of their surface dwelling siblings, saw the spire as a symbol of the gods that was created to mock them. The Drow came forth from their hidden cities and used dark magic to destroy the silver spire, draining it of its magic to help them create a great army. They used this magic to create their bespoke slave race the Orcs to fight for them. They bound their dark magics to the spire and it turned black, and a night with no dawn fell across all the land.
For thirty days darkness reigned as the Drow and their army made their way towards the city of Kulidair to the south, destroying anything in their wake. When the armies finally fought on the plains the Dwarves are said to have watched from the mountains but refused to become involved. The mage-queen Egiolin, through the sacrifice of her own life, was able to return light to the world and force the Drow back to underground.
The remains of the spire stand as the Pillar of Night, and the valley around it is toxic to most forms of life, choked with a fine grey dust. Only the incredibly brave (or inconceivably stupid) travel to the area. The Dwarves refer to the plains where the final battles took place as the Edhelgoroth and none of them will pass through the area to this day.
As the Old Elven Empire receded the races of man were able to come to power, establishing a series of nations of their own. Largely geographic in nature and organized around those of similar ethnic makeup the Humans of the known lands eventually settled into a collection of five nations.
It was slightly over two centuries ago that King Aros of Thellerg sought to unify the human nations into a single kingdom under his control. When the word was sent to the other nations the people of the Plains and the Southern Reaches forged a treaty and joined this new unified kingdom peacefully. The raiders of Arad and the islanders of Helladhil refused the offer and it was only after several years of war that they were eventually defeated and brought into the newly unified Kingdom of Thellerg with representatives of the Thells instituted as new overseers of these territories and inserted into the ruling families of those territories through a system of arranged marriages.