Once upon a time the race the world now knows as Wood Elves were simple Elves like any other. At that time the High Elves were the uncontested rules of the world, uncontested that is save by each other, for the Elves were locked in perpetual battle waged by one God King against another. (much thanks to ZiNOS' High Elf background for these ideas).
One of those God King Sorcerers went by the name of Seridar, a Magician who eschewed the Orc and Human slaves of the other Kings in favor of wild beasts controlled by his spells. Seridar ruled a powerful kingdom in the western lands, on the edge of the great forest of Kaishar, and fought to keep his cities safe from the predations of the other Mage-Kings.
It was not to be ...
Zarathor and the death of Seridar
From the lands to the east of Seridar's forest Kingdom the God King Zarathor cast envious eyes on the beast-magics of his rival ruler. Lashing his Orc slaves into a frenzy the God King sent his armies to overrun the forest lands, burning and slaughtering everything in their path. Seridar fought valiantly to prevent the invasion, but he was vastly outmatched by one of the most ruthless of the High Elven rulers. From the marshes that lay between their lands Zarathor raised skeletal hordes to bolster his Orcs, and from his capitol city, the now legendary Black Tower of Amathor, he raised vile magic with the help of his Lich servants.
The Elves of Seridar fought bravely but hopelessly. No matter how bravely his Celestial Guards fought, they could not hope to win. In desperation Seridar and his most powerful Mage servants sought to break Zarathor's army with the power of their magic. They summoned the spirits of the forest land, attempting to infuse their kind with the spirit's power and use it to destroy Zarathor. It was an act of madness. Even with the spirits within them Seridar and his wizards were torn apart by the black spells of Zarathor, slain where they lay in Seridar's tower. In that moment a terrible backlash of power tore through the very troops that Seridar was hoping to save, wracking them with agony.
In the aftermath of Seridar's death the unguided magic warped and changed the remaining High Elves of Seridar's army. When it passed it left something else behind ... shortened and altered creatures who cast their Elder blades aside and fled into the trackless depths of the forests.
The High Elves of Seridar were dead ... but in there place remained something else, the first Wood Elves.
The Hidden Kingdom
For centuries afterwards the fate of the Seridar Elves was unknown to all. Zarathor plundered their lands, stole their wealth and returned home, only to perish in his own turn when the great Orc uprising overthrew the reign of the God Kings for good. After the rebellion the lands of Seridar lay empty, too blasted to be of interest to either Orc or Human. Those few rangers and woodsmen who ventured into the edge of the forest fled quickly, whispering tales of monsters and ghosts in the deep briars and thickets.
Monsters and ghosts there certainly were, for the refugee Elves did not perish entirely. Instead they made new homes in the trackless depths of the forests, allying themselves with the beasts who were now their kin and the forest spirits who had merged with them. Some became beasts themselves, and re-emerged as Centaurs.
The race revealed
The new race of Wood Elves did not remain hidden forever. Half a millennium after the death of Seridar a fleeing force of humans, peasants, refugees and exhausted soldiers, found themselves at the edge of the Forest of Kaishar, now known as the Ravenwood, with a ravening horde of Orcs and Half-Orcs in pursuit. The beleaguered humans set up what defences they could, but all knew that there was little hope, so while the soldiers set their lines the women and children ventured into the haunted forest, hoping to hide from the Orcs.
It was there that they encountered the Wood Elves, who melted out of the shadows to confront the intruders. Though the Wood Elves seemed like fearsome monsters, they were touched by the plight of the humans that was so like their own history.
So it was that when the Orcs fell upon the human soldiers, they suddenly found themselves showered by arrows from the trees, smashed by half-elf-half-horsemen, smote by bears and hunted down by wolf packs. It was a rout and a slaughter. The few Orcs that escaped had one message for their kind, something had emerged from the trees of the Ravenwood, and it was not going to be easily stopped.
The Wood Elves had arrived.