I'll leave out the fluff but it's still kinda lengthy.
Basically before the first game started there was a normal universe like ours, but people became naturally greedy/envious/dastardly/etc, and a war broke out in that universe. The casualties in the war caused the amount of light and darkness in the universe to become too unbalanced, and the universe was eventually destroyed.
In its place three new realms were created: Paradiso (Heaven), the World of Chaos (Human World) and Inferno (Hell). Purgatorio (Purgatory) isn't really a realm but just sort of an alternate dimension to the World of Chaos that angels/demons use to go there.
Anyway, Jubileus (final boss from the first game) would have ruled over Paradiso had she not been sealed during the destruction of the original universe, Aesir (final boss of the 2nd) ruled the human world, and Queen Sheba (huge demon that punched Jubileus in Bayo 1) ruled Inferno. People assume that the creator of the
original universe was split into these three, but it's not confirmed.
In the human world, humans originally had no free will and were just ruled by Aesir. But, Aesir, who was benevolent(at least back then), gave a portion of his power to the humans in the form of the Left Eye of Darkness and the Right Eye of Light (together known as the Eyes of the World). The Umbran Witches took hold of the left eye, and the Lumen Sages took hold of the right eye.
K almost done. This is the part that's actually shown in the first game. Some time after the witches and sages flourished as clans, the angels of Paradiso made the decision to attempt to revive Jubileus and use her power to make Paradiso the dominant realm of the trinity. To do this they needed both the Right Eye, which the Lumen Sages had, and the Left Eye that was kept by the Witches. So, the angels and the sages went to war with the witches, and even though the sages lost, both clans were pretty much eliminated; Bayo and Jeanne are the last witches, and it's assumed Balder is the last sage.
Lemme know if anything's unclear or there's anything left out.