The city of Auchindoun was founded as a City of the Dead by the Draenei. It was a burial place for their fallen brethren, beginning the remains of D'ore, a Naaru who had been killed in the crash of Oshu'gun. It remained this way for some time, a beautiful(though macabre) mausoleum in the heart of Terokkar Forest, second only to the Shadowmoon Valley of old and its blessed Temple of Karabor in the hearts of the Draenei of Outland.
Unfortunately, all good things must come to an end. During the rise of the First Horde, the Bleeding Hollow Clan of Orcs laid siege to the City of the Dead, much like what happened to the Temple of Karabor(now known as the Black Temple). The Bleeding Hollow turned Auchindoun from holy ground to a fortress. The Bleeding Hollow defiled the grounds of Auchindoun quite thoroughly themselves, and this was only made worse by their ceaseless attacks on the Alliance Expedition which had worked so diligently to force the Orcish Hordes from Azeroth. The expedition, with Turalyon, Alleria Windrunner, Khadgar, Kurdran Wildhammer and Danath Trollbane at the helm, took the fight to the Bleeding Hollow rather than allow themselves to be hassled. The Alliance Expedition took their turn to lay siege to Auchindoun. The Bleeding Hollow did not last long within their fortress.
The Expedition held little interest in occupying this fortress in the long term, and went on their way. The Draenei slowly migrated back, though many of those individuals had less-than-righteous intentions for the once-sacred city of Auchindoun. This 'peace' was quite brief, as other factions moved into the region for one reason or another. The most notable faction to set up shop in Auchindoun is the Shadow Council, but we'll come back to that.
In The Burning Crusade, you will probably encounter the factions in this order: The Ethereals, the remnants of the Draenic sect of Auchindoun, followed by Talon King Ikiss and his Arakkoa followers, and then finally meeting up with the Shadow Council themselves. You likely know these sections of the city as the Mana-Tombs, the Auchenai Crypts, Sethekk Halls, and the Shadow Labyrinth.
The Shadow Council's activities within Auchindoun drew the attention of the nomadic Ethereals, of many factions. Two major factions of Ethereals are at work here: The Consortium under Nexus-Prince Haramad, and another under Nexus-Prince Shaffar. Both factions are competing to gather the energies within the Tombs, but Shaffar has gained the upper hand. Nexus-Prince Shaffar has actually managed to set up wards against the Consortium, but Nexus-Prince Haramad, being the super-cool dude that he is, slips adventurers a little gold to get rid of his competition.
Deep within the Auchenai Crypts is a former Exarch of the Draenei by the name of Maladaar. With the help of Levixus, Maladaar seeks to raise and enslave the dead of Auchindoun through Necromancy, using their souls for his own dark purposes. Among those he has imprisoned is the Naaru D'ore, the one the Draenei had laid to rest there thousands of years prior. The intentional actions of Levixus and Exarch Maladaar, and the unintentional actions of D'ore, has caused much of the spiritual problems with Auchindoun. The haunted halls and roaming dead are primarily their doing, though the destruction of the city's structure is not.
Talon King Ikiss makes the Sethekk Halls his home. This Arakkoa was once a powerful leader of the birdmen, and his charismatic ways caused a split within the Arakkoa of Skettis. When the Shadow Council caused the explosion of Auchindoun, Ikiss and his second in command, Darkweaver Syth, took this as a sign of the return of their 'master.' Those loyal to Ikiss, now known as the Sethekk, followed him and Syth to the remains of Auchindoun to find their master. Ikiss has fallen into insanity since, declaring himself to be Terokk reborn. It's believed that the 'master' is referring to Terokk, though it may also mean Anzu, the Raven God. Terokk is most likely, but a quest in Blade's Edge may imply otherwise.
Though the Bleeding Hollow Clan did a number on Auchindoun, the real disaster was caused by the Shadow Council. This cult has a close affiliation with the Burning Legion, and its goal was to summon a being of great power, to enslave it and utilize its immense strength for their own gains. Their summoning of this creature was successful, in that it was summoned. It was unsuccessful in that this creature largely destroyed the remains of the city, laid ruin to the surrounding area, and is acting against the Shadow Council.
This creature is Murmur, the Essence of Sound. The Codex of Blood is a book found within the Shadow Labyrinth, and it tells the tale of Murmur.
Known only as Murmur, it was the essence of sound. And to hear it speak was to know death eternal!
Existing only for chaos, its slightest whisper meant the destruction of whole worlds!
Yet still, there were those that would try to worship this mindless being. There were even those more insane who dared to think to control it!
And lo, how the mighty fell trembling at its feet, fearful that it might direct its words upon them.
But still did these charlatans, these worshipping pretenders to a non-existent religion, rail against the inevitable in a vain attempt to control their 'god'. Uncaring, and likely not even noticing them, Murmur yawned and they knew oblivion.
Yet one somehow managed to survive, and in his insanity found a way to bring Murmur into the world.
A mortal possessed of arcane and dark knowledge that none could surpass, he devised a method to enhance his summoning through the capture and use of souls untold.
Whole civilizations were brought to extinction through his soul devices to fuel the ritual through which he and his conspirators would bring Murmur into their world.
And summon forth Murmur they did.
Powerful magics of containment and silencing were employed, held together by the constant supply of souls being fed into them. Yet still they could not control the beast, could not bend it to their will.
These mortals began to devise different strategies, and one after the other they all failed. And in so doing, they weakened the rituals, accidentally giving Murmur the slightest modicum of freedom.
It was all that was needed.
Only this book survived the cataclysm that destroyed their world. Those proud and foolish men who thought to control a cosmic being of untold power.
Would you, the possessor of the codex, do the same?
Have you devised a foolproof method to summon forth Murmur, or any of the other entities cautiously whispered of in these unhallowed pages?
We shall see."
From this text, we can assume Auchindoun was chosen as the summoning point for Murmur due to the great number of souls in this region, Draenic and otherwise. The Soul Devices scattered throughout the Labyrinth are being used to amplify their summoning and containment of Murmur, but even that, it seems, has not been enough. As you fight your way through the Labyrinth, cutting your way through the Orcs, Broken, Ogres and Demonic forces of the Shadow Council, a great number of the Council's warriors do battle with the nearly-uncontained Murmur.
When you reach him, little remains of the Essence of Sound, but being the heroes that you are, you kill everyone trying to stop and contain Murmur and decide to kill him yourself. Hooray! Certainly, the Shadow Council would not have simply killed him and would have still manipulated him for their own purposes, but it does quite amuse me that you take it upon yourself to knock off that final 20% of his health. Way to steal the tap, guys. Why don't you ninja the loot while you're at it? Well, okay! Don't mind if I do!
Forgive me- Murmur disappointed me as far as gameplay. I loved his story, the build-up was epic, but I didn't feel they followed through. They played up the "the Shadow Council is containing him" bit too much. I felt the fight was a little too straightforward and simple for something that has sundered worlds with a whisper. But I digress!
By the conclusion of The Burning Crusade, the threats that lie within Auchindoun have been mostly deseated. The city has a habit of falling to a new, exciting disaster however, so it remains to be seen what will happen from here. Perhaps the Sha'tar of Shattrath City will move in and rebuild their sacred ground and restore it to what it once was, but they may have their hands full with the fallout of the Sunwell Plateau. Perhaps the Consortium will simply make it their new headquarters. Who knows?
If you want further information on the City of the Dead, I recommend simply doing the quests and dungeons in The Burning Crusade. If you happen to have a copy handy, you may also want to give Warcraft II a play through, as Auchindoun's first appearance can be found there. Also, you can pick up a copy of Rise of the Horde, a Warcraft novel by Christie Golden. Even if you have no interest in Auchindoun itself, you really should pick that novel up anyway. It is very, very good.