Many many generations ago, a branch of elves broke away from the main kingdoms and vanished into the wilderness, eventually cross-breeding with halflings. Due to the nature of Darkwood, these elves became more and more feral over time, resulting in a smaller, faster, and slightly more vicious breed of elf, called the Wilder Elf. They took to the low-light of Darkwood like fish to water and have remained there ever since. Eventually, Man found their way into Darkwood--merchants seeking a route south, looking for untold riches, to what would later become Anduir's Rest. However, but upon entering Darkwood they were beset by bands of monsters and... something else. The Wilder Elves didn't take kindly to having their home invaded, and drove out anyone who dared enter their wood. Now stranded in the plains between the mountains and the woods, the humans struggled to survive, but as is with most humans, determination and a will to live won out, and they established a small village. As the human kingdoms grew, more people were stranded in the plains, and eventually founded two more fortified villages. Working together, the bands of merchant villagers coaxed out a small path through the Darkwood and into the mountains. This path of villages, heavily fortified gates, and treacherous mountain passes came to be known as Darkwood Pass. From there, the merchants formed the Darkwood Pass Merchant Company, eventually trading their local goods and unique and luxurious brown wool with the rest of the kingdoms.
To this day, the Wilder Elves keep to themselves and answer to no one. The only path through Darkwood is the one they allow the merchants to use, but any further south, the mountains prevent passage.
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Darkwood is a heavily wooded area west of Castle Caraway, surrounded by nigh-impassible mountains.