The Paths of the Dead are part of the The Shadow Plane, a transitive plane, that allows access between the Ethereal, Astral and Material planes and facilitates access to the other main planes of existence.
When most people die, their soul passes straight to the Astral Plane, where they join up with the River of Souls, and are carried straight to Pharasma's Boneyard. However, some get 'lost' and finish up in the Plane of Shadows instead. Some manage to find their way to the Astral and then on to the River of Souls, although many become stuck in the Shadow Plane, where they travel endlessly in search of salvation.
However, the Shadow Plane is infused with negative energy, and the ‘lost souls’ are continually exposed to this and, after a time, they change. Driven mad by the endlessly changing plane, the utter loneliness of their existence and their continual exposure to negative energy, they change - and become Undead Shadows with no memories of their former existence.