The current year is 352 AU (After the Upheaval). Exactly how long the process of the upheaval lasted is hotly debated by scholars today, but we know it was a series of violent floods, earthquakes, meteor strikes, droughts and massive destruction that forever changed the face of the world. Deserts became oceans; forests were torn apart and vanished in terrible floods of molten rock, mountains cracked. Out of this came the islands and landmasses you call home. You may have heard rumours of other continents hiding in the vastness of the oceans, but the islands of the Life Sea are what you are familiar with. Before the upheaval, the various races lived in either harmony or disharmony (historians argue, since very little physical evidence of life before is still extant) but it is certain that there was a fair dispersal of people of various races, because the upheaval separated them from their original homes and forced them to live together in new and surprising ways. The gnomes and halflings made homes for themselves where they were, often close to humans. The dwarves stayed in the mountains (largely the only places left above the water masses) and kept up their secretive, and now hugely unpopular, ways (see the History of Magic for more info). The dragonborn sometimes show themselves, though where they come from is largely a mystery to anyone but them. The elves, fiercely territorial, have largely shut themselves off from the world on mysterious, impenetrable island home, although some were caught elsewhere in the world during the upheaval and had to make new homes for themselves.
The reason for the upheaval
There are several theories on what caused the upheaval, but largely they boil down to either divine retribution or the dwarves. Since the gods are very much active in the world, and at least never let on that they had a problem with sentient life, the blame often fall on the Hildana dwarves. (When in doubt, blame the dwarves.) Since the Hildana dwarves were engaged in some solid empire-building and very shady dealings, made possible by their access to the magical metal of kemlek, before the upheaval, it is largely assumed they caused the catastrophic events that shattered the world. Who else could have done it, if not the mage-smiths? Whatever lurks on top of the Spire, it would likely give evidence of the guilt of the Hildana dwarves.