The Aifons mysteriously disappeared, and no one really knows why. Their souls are not to be found in any gods vault.
Xienwolf has speculated that Tenton Majosi's attempts to save them may be what doomed them. In his quests to find some way to protect his people Treton eventually uncovered a ritual that would allow him to summon his god Danalin into creation to protect them personally. He began casting it, but then changed his mind when he realized that binging Danalin into Erebus would trigger another godswar and end up killing many more people. Xienwolf speculates that the ritual itself (which is probably similar to The Draw) was powered by consuming the souls of his entire race, and that Trenton was not able to stop it in time to avoid paying this price. Presumably when this ritual found its way into Illian hands i already had most of the power it needed from the Aifon souls, so the Illian casualties were much smaller. Kael has neither confirmed nor denied this, as e prefers to keep things related to the Aifons and the Overlords a secret.
Although Danalin could not personally get involved, he released his pet the Leviathan to protect the Aifons. He presumably witnessed whatever it is that happened to him, but could do nothing to stop it and was driven completely insane by the experience.
Danalin was very depressed by the loss of his favorite people and chose to go to sleep to escape the emotional pain over their loss. At this point, Mammon's archangel Hastur sneaked into Danalin's vault and began whispering horrible things into his ears, things which work their way into his subconscious and manifest themselves in his dreams although not always the way Hastur wants them to manifest. Danalin is dreaming about Hemah, another effective dreamer like himself. I sometimes think this means that Hemah is the character he takes in his dreams, thus making Hemah an avatar of Danalin, even if he doesn't know it. Hemah has a tragic life, thanks to the influence of Hastur.
It is implied that the Overlords may be the products of Hemah's dreams, or of Hastur's whispers, or of both. I believe Kael said that he knows a lot more about the Overlords than he has let on, but that the true story is less interesting that the mystery and the guesses so he refuses to ever reveal it. No one in Erebus knows the truth either, including the gods and the overlords themselves, so it is appropriate for it to make no sense to us.
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