Demons are evil entities native to the Burning Hells. They come in a variety of shapes and sizes and can wield a wide range of magical powers depending on their type. They propagate and serve to spread pure chaos, making them diametrically opposed to the the Angels of the High Heavens(who stand for Order). The neverending war between Angels and Demons is known as the Great Conflict. The Demons of the Burning Hells are ruled by the three greatest demons known as the Prime Evils, in addition to the Lesser Evils.
Demons cannot exist naturally in Sanctuary and must be summoned through a magical ritual. As their spirits can not manifest itself they require mortal hosts in order to take shape.
Demons originate from the Black Abyss or are spawned within the Hells themselves. It is not known how the first demons came in to being, but it is revealed that other entities - even humans - can eventually become demons (see the Goatman article for instance).
Demons can practice different schools of magic, though many demons possess an affinity for raising the dead and Fire based magic. This does not mean they're automatically 'fond' of fire, though.