The one thing certain in life is death. No matter what, everybody dies eventually. Once someone leaves this mortal coil, a reaper will bring their soul into a new world for their afterlife, where they are reincarnated. These reincarnated forms are known as 'demons', though unlike how demons are thought of in contemporary society, they are not necessarily evil.
The Netherworld is one of many afterlives. It is a relatively knew place in the grand scheme of the universe, and is quite unlike other afterlife dimensions. For one, the demons reincarnated here will not resemble how the original soul looked in life, instead being reborn as one of the many 'demon species' unique to the Netherworld. They also aren't likely to remember much of their past lives, if they remember anything at all, though certain personality traits and quirks may hold over into their new form.
The Netherworld was created by a deity known as Balthazar, though he does not hold himself in such high regard, instead preferring to be referred to as the 'mayor' of the Netherworld. At first, the Netherworld was a bland, dark, featureless place, nothing but flat, grey stone for miles. Balthazar was lonely, so lonely. He too is a demon of sorts, and he remembered his past life in vivid detail, including its graphic end. After a million years of nothing, the first souls began to appear in the Netherworld. Out of the empty stone floor, Balthazar sculpted new forms for them, taking inspiration from the creatures he remembered from his distant life, these new forms being what we now know as the different Netherworld demon species.
As more souls appeared and were born into these new forms, the environment of the Netherworld began to develop to accommodate these new residents. Forests, jungles, fields, caves, rivers, lakes, towns, cities; before long the Netherworld as we know it now had come into being! While the skies still remain as dreary as ever, the streets are now bustling with life after death.