Board Thread:Lore Discussion/@comment-72.15.121.211-20140205190000/@comment-24261859-20140206072154

Way I understand it, the whole TES universe is basically the dream of a giant god (not like the Aedra or Daedra, but even grander.) When people die (mostly) their souls get "recycled" in the Dreamsleeve, which entails wiping of memory and being put into a new body. This only happens if you do not qualify for another afterlife (nords who die heroically go to Sovngarde, Werewolves go to Hircine's realm, etc.).