The world was as the real world is now, booming with business and prosperity. There was but one mystic left in the world. His name varies, but we know him generically as "the Guide." He knew much of the world and its secret workings, but he was largely ignored because of "science." The Guide went mad and used his vast magical knowledge to demolish the barrier between the world of the dead and our world. Many of the people of this world were wiped out by the wave of horrible monsters that rose up from the underworld. These beings eventually adapted to life in the overworld, becoming zombies and slimes, but becoming more demonic the closer to the underworld you came. The few survivors of this attack banded together to fight this madman, headed by the lowly clothier (and our father) who had a bit of magical knowledge up his own sleeve.
By this time, the madman had built himself a house in which he allowed more elite demonic beings to live. A single brave scout (the mechanic) was sent to search this great building, but she was caught, tied up, and left to rot. This infuriated the powerful clothier, so he confronted the Guide at the gates of the dungeon and intended to have a great mystical showdown, but the cheating Guide put a powerful curse on the clothier that began to turn him into a grotesque monster. The clothier quickly cast his own spells to make himself into the monster known as Cthulhu, but the Guide blasted him apart! His brain splatted against a part of the earth and it became the Crimson, his eyes were cast away into space, and his flesh was burned until he was merely the animated skeleton of the monster. The clothier was able to summon the spirits of light and dark in a last ditch effort to defeat the Guide, but he fled to the underworld.
The remainder of the people tried to follow him - with the exception of the pirate, who was taken by the pirate army; the goblin tinkerer, who was taken by the goblin army; and the wizard, who was captured and bound by various monsters in the cave - but were all too late. When they found the Guide, he had finished a ritual which would allow him to turn into a monster upon his death. He took a voodoo doll of himself and cast it into the lava. Then, all the flesh from all the decaying corpses of the dead assimilated into a ginormous wall of flesh. The horrified survivors of Hell's army fled back to the overworld as the Guide conquered the underworld and sealed the spirits summoned by the clothier. The people of Terraria scattered and hid themselves in the vast world as the Guide banished the last of the Hallowed land, leaving only the diseased corruption and cimson to remain. Just when the evil Guide thinks he's won, the clothier's only son (that's us!) comes up behind him with a copper sword. He blasts us with a powerful spell and we fall backwards onto the ground.
He walks away thinking himself the victor until he hears the sound of trees falling behind him. He goes towards the sound and sees us cutting down trees with a copper axe. He approaches us and we greet him with a warm, amnesic smile. He ask him who he is and he answers, "They say there is a person who will tell you how to survive in this land... oh wait. That's me." with a warm smile.