Around three to four thousand years before the campiagn starts, the arcane cataclysm occurred and nearly wiped out several planes of existence. Not much is known about how and why this happened beyond the fact that every epic powerful arcane and divine caster met to do many experiments with areas of magic and the ensuing chaos destroyed 90% of just about every living creature and populated the world with monsters. A lot of monsters. Historical documents before the arcane cataclysm are believed to be destroyed entirely and anything done a few hundred years after has not been found.
This event has been retold among every generation of every race, though embellishments and variations are fairly common. The most wideheld belief is that elves and gnomes started these experiments. Most elves have shunned their magical lineage in order to be closer to nature and their warrior spirits. Gnomes on the other hand maintained their magical tradition and have so continued research and are far more liberal when it comes to the use of magic. For this, they are mostly shunned outside of their homelands and are more commonly referred to as gypsies.
No one is really sure how the world was before the arcane cataclysm but whatever it once was, the aftermath was far worse. The populace fears that new forms of magic might cause a new arcane armageddon.