We are told that in the beginning there was the primordial, half-formed world which was ruled by the immortal Stone Dragons. They, like the land itself, were changeless and undying.
In the depths of the world there arose the progenitors of the humans, giants and other creatures of the world that we see scattered through the Dark Souls universe.
At some point (when is unclear, and a relatively unimportant question in a world that pre-exists time) the First Flame is kindled in the deepest reaches of the world. Within the Flame there exists the Four Souls which serve as fuel for the Flame.
These souls, as we are told, are discovered by four mighty beings who claim their power for their own. These beings came to be known as: Gwyn, Lord of Sunlight; Nito, the First of the Dead; Isalith, Master of Fire; and the mysterious figure known as the Furtive Pygmy.
The Lords rise up and use their power to cast down the Stone Dragons and usurp control of the surface world. They are aided by Seath, a dragon born without scales who therefore lacks the immortality of his kind, who is rewarded by Gwyn by making him a Duke and, eventually, giving Seath a fragment of his Lord Soul.
Nito retreats to the catacombs to become master of the dead and Gwyn and the Witch of Isalith go on to found their own mighty domains. The Furtive Pygmy chooses to remain in the shadows, repeatedly splitting its own Lord Soul, known as the Dark Soul, which he portions out to the emerging race of humanity who begin to multiply.
Eventually, without the power of the Lord Souls to sustain it, the First Flame begins to fade. This alarms the Lords as their own power is linked with the Flame. They fear that their dominion over the world will come to an end if the Flame is lost; they also fear the emerging threat of humanity who could, in time, come to challenge the Lords for control over the world.
In desperation, Gwyn decides to commit the First Sin by linking his own soul with the Flame. However, he is aware that his own soul cannot fuel the Fire indefinitely. Therefore, before linking his soul with the Flame, he comes up with a plan to ensure the continued propagation of the Flame.
Gwyn devises a plan which forces the emerging humanity to continue to feed the Flame through sacrificing their humanity as fuel. In order to achieve this, Gwyn enlists the aid of Nito, First of the Dead, to create the curse of undeath to afflict humanity.
The curse, which would be devised and unleased by Nito, only intensifies as the Flame fades. In order to avoid going hollow, afflicted humans must harvest humanity from wherever they can and offer it as fuel to the bonfires that are linked to the Flame. Not only does this help to fuel the flame but it also allows the undead to retain their sense of self and avoid going hollow.
As the flame fades, ever more members of humanity fall under the curse and become undead, become afflicted and begin the process of harvesting fuel for the flame to avoid the fate of going hollow.
This plan has the double benefit of ensuring the propagation of the Flame, and therefore the continued rule of the Lords through the line of Gwyn, who presumably contain a portion of his Lord Soul, but also has the effect of dividing and weakening humanity through the curse.
Although not explicitly stated, the curse of undeath makes more sense as being purposefully created and targeted at humanity by a hostile will rather than through a chance of nature or an unintended consequence of the fading of the Flame. The label of a curse is important as it does not act in the way that a disease would, which could be mitigated and quarantined. It is interesting to note that only humanity is afflicted by the curse. The only undead giants and other creatures that can be found in the Catacombs seem to exist only through the efforts of Nito and, to some extent, Pinwheel.
As the First of the Dead, Nito would be well placed and capable of creating an undead curse which could be unleashed at the bidding of Gwyn, in the same way that his powers were unleashed against the Stone Dragons. As a being who is only interested in spreading death, the curse of the undead would appeal to Nito as it encourages the undead to kill to further harvest humanity.
To further solidify the continued propagation of the Flame by humanity afflicted with the curse of undeath, Gwyn, or possibly his children, conspire with Kingseeker Frampt, one of the primordial serpents, to create the prophecy and myth of the Chosen Undead as another means of control.
By distributing the prophecy, and the myth of the Chosen Undead, it encourages the more powerful of the undead to seek more souls and link the Flame, framing it as a noble quest to banish the curse of undeath. The process does indeed do this, for a while, until the Flame begins to die down once more, re-starting the cycle.
Having devised and implemented a plan to ensure the continued protection and fuelling of the First Flame, Gwyn splits his Lord Soul with his children and several other important figures, and finally offers himself to the Flame, becoming the first Lord of Cinder. His loyal knights who accompany him are charred in the resulting conflagration, becoming the Black Knights that wander Lordran.
At some point before the linking of the Flame by Gwyn, the Witch of Isalith attempts to re-create the First Flame, but instead ends up creating the Chaos Flame the eventually spawns the demon race and pyromancy.
It is logical to assume that the events taking place in Dark Souls 1 happen just after the first waning of the Flame since Gwyn became the first Lord of Cinder (although it would seem that this is still a very long time after that). I think this is evidence most by the fact that the Nito and Seath are still alive (if that is the appropriate word for the First of the Dead and a now immortal dragon.)
I did wonder why Frampt (presumably with Gwyn’s permission) would push you towards destroying Nito, Seath and the other holders of the Lord Souls. The simple answer would seem to be that he knew that powerful souls would be needed for the re-kindling and no longer really needed the other holders of the Lord Souls for anything. The Flame would continue to exist without them.
I also questioned how the Flame could be linked in subsequent cycles of the process as the powerful souls of Nito etc would already have been used up in the players run in Dark Souls 1. However, this must be where the Lords of Cinder come into play. Just as you kill the first Lord of Cinder in the form of Gwyn, subsequent ‘chosen undead’ must vanquish all the other Lords of Cinder who are created through the process of linking the Flame before linking the Flame themselves.
This is yet more evidence of the cyclical nature of the process and ingenuity of the deception by Gwyn and Frampt. It is hard to shake off the feeling that you are being used when you play the game, and I know that next time I am faced with the choice, you better believe I will be choosing not to link the Flame.