Everyone dies. The mortal races die of all manner of causes. Even the arcane races, who do not naturally die of disease or become feeble with age, can be killed by physical trauma or malnutrition. When someone dies, their spirit (often called soul by the mortal races) leaves their body and becomes part of the world of spirits. The spirit retains self-awareness and the personality of the deceased, though this gradually fades among the souls of the mortal races, and eventually returns to life in the body of a new member of the same race. This is the Cycle of Arda.
The spirits of the arcane races retain their personality throughout their many lives: a fey or a giant remembers their past lives and what they knew, though their current body may not recall all things clearly or be capable of carrying out what they know how to do. The souls of the mortal races lose their personality when they are reborn, and sometimes this is lost before they are reborn.
The gods long ago claimed power over the lives of humans, and their souls were often imprisoned in underworlds and heavens created and maintained by the gods. Now, however, it is possible for the mortal races to break the Cycle of Arda. Devout belief in the God of the True Faith leads to the soul departing Arda for what believers call Heaven and pagans call non-existence or self-destruction.
The departure of the spirit or soul is not necessarily the end of life. Magic can reanimate the body, and even restore the spirit or soul if it has not left Arda for the Heaven of the True Faith. However, it rarely restores the body to true life: instead, it brings about the creation of the undead, who are driven to consume flesh and blood in their misdirected need to regain the source of life.
The undead fall into two groups, the unaware and the aware. The unaware undead are merely husks, sometimes nothing more than bones. It is easier to create and control the unaware undead because they have no intellect and no will. The aware dead retain the personality they had in life. Sometimes the strength of personality alone causes them to return after the death of their body, but more often it is magic, either their own or a curse that falls on them through the manner of their death.
The undead are clearly outside the boundaries of the True Faith. Not only are the souls of those buried by the priests of the True Faith no longer in Arda, even their bodies cannot be raised from the ground as long as it remains hallowed to the True Faith.