(Not sure if everything is correct, but I and my other friend played the game together and came up with this version, connecting all the dots from across the game.)
The Andorian Empire was once really strong. It consisted of
Andorians living on a continent east of Varannar, across the Andor sea. But there lived an alien species amongst the Andorians too, the Mu'ud. They were from a planet far from the planet the game is set on, Noutamet. (I have no idea how they are stranded here.) They want to go back to Noutamet, so they employ certain very strong sorcerers from their midst called the Deep Lords to create a portal to lead them home.
Meanwhile, on the island of Varannar, yet unknown to the empire, four friends go on a journey to defeat a dark wizard holding some powerful gems. Three men and one woman, these four friends defeat the dark wizard and take the four(?) gems from him. But doing so, the power of the gems ascends these four to Godhood. They become living Gods. Their new names are - Arbenos, Nivaria, Thelume and Tol. Three exist peacefully in the Thyr mountains in Varannar, supporting and maintaining life, while the fourth, Tol, is fascinated by death and darkness. He separates himself from others and creates a race of servants known as Tolassians. The Tolassians enslave the local inhabitants of Varannar, the Varannari, and builds temples and shrines of the dead across the island, but the main two temples being in Inori Desert. (Izagul and The Forgotten Temple). Tol wants to create a world where the Dead and the Living could co-exist. But his experiments fail, and the Tolassians misinterpret Tol's message and crave for the supremacy of the Dead instead.
So, the Tolassians go on a war with The Three for this reason, also owing to their already strained relations. Tol is defeated by the three, his crown sundered, eye shattered and himself locked up beneath his own high temple, Izagul. He is waiting for one of his Tolassian champions to bring him back his crown so he can rectify his mistakes.
The Varannari slaves, now that Tol has fallen, flee and discover Mount Orogg in Varannar, and discover a very powerful and dark magic in the mountains, one that had been on the island since even before the Varannari. To exact revenge on their Tolassian master, they give in to the power of the Witches of Orogg, and with Tol gone, his followers don't stand a chance against the Witches, and forced into their underground tombs and shrines into hiding.
Around at this time, the Andorian empire, still strong and flourishing, discovers the Island of Varannar and sends in ships to colonise it. The Empire is still unaware of the great Horror that is about the befall it. New cities and castles are erected across the island of Varannar as a part of colonisation drive, Garrand and Icemist being two of them. The Colonisers still mostly have no idea about the ongoing wars and power struggle in Varannar involving the three and Tolassians. But then, a group of colonists led by Xoladan find The Three in the Thyr Mountains, and they change their religion to worship them. Xoladan and Nivaria fall in love. They situate the city of Nivaria together. At the same time, the rest of the Andorian colonists are met with Ronean Rebellion, led by the locals of Varannar to overthrow the Colonial rule. The empire sends war fleets, and defeats the rebels in the Battle of Greenwood. A hundred Flaming Dragoon Knights, clad in fire proof armour, defeat 2000 rebels, by burning up the whole Greenwood where the Rebels camped. It's now called the Deadwood.The colonisation is successful. Garrand is the capital of the newly found Imperial Colony of Varannar. (Garrand is different from New Garrand.)
Later, the witches start to grow threateningly powerful, so The Three again venture forth to stop them. The Witches are defeated, and sealed inside a monument built atop Mount Orogg, with help from Nivarians.
Milennias later, in the Andorian empire, far away from Varannar, the deep lords open up the portals, and while the Mu'ud flee, Horrors flow into the empire and destroy it within weeks. The survivors flee to their already existing Colony on Varannar, but the Empire cannot be formed again because religion intercedes. The Imperial mages want to follow the Arcane religion, and set up Thuram. The military orders want to have a strict military based dictatorship, and set up Mercia. The next group follows the three, and sets up Ilmara. And old nobles from the empire stick to their old religion, and set up Varsilia.
(Again, I am not sure if this is accurate or not. If in game, you have completed the quest "...and the abyss gazed back,", go to Arch Bishop Dilla and ask her about the book Duremas had stolen. The book tells you about how the three were once mortals. Since this goes against the church teachings, which says the three were ever immortals and strong, the book is burnt right after you recover it from Duremas.
When Archbishop Dilla is telling you about the story of the book, she says that it's quite boring and inane, clearly not wanting to disclose its contents. When you ask her the name of the adventurers, she acts annoyed and tired, and tell you name of only one of them - Jorum. Not sure if she made it up on the spot.
Duremas went insane probably because he now knew all the secrets of how the three originated by reading the book, and realises he has been worshipping mere mortals all this time. His son disclosed the secrets before him, and when he opened his mouth, Duremas had him executed on charges of blasphemy. Arch Bishop Dilla tells you about this too. A very collaborating version of this lore can be heard from Tol himself when you return him his crown.
Also, I am not sure if it's the same one or not, but if you donate a large amount of money to the altar in front Arch bishop Dilla, I think 50k, you have visions of Three men and one women arguing inside a tent. They are probably the three and Tol.
Arch Bishop Dilla also tells you that one of the four friends was a war priest (Arbenos), one was a healer (Nivaria), and one was a mage (Thelume).
In Masoleum, in the caretakers quarters, you can read about how the caretakers of Masoleum were being tormented by Tol's undead. They wrote about how Imperial Theurgists come from Andorian Empire time to time to seal the undead away. On one page, a caretaker writes about something very terrifying and horrible happening in the Empire, and how the Theurgists have stopped coming. He was talking about the Horrors. This tells you that the Empire knew about Varannar long before actually moving there when the horrors destroyed Andoria.)