Spirits, sometimes called the Fae, are living embodiments of the 7 elements: Wind, Water, Fire, Earth, Light, Shadow and Life. Every spirit is some combination of the elements, with the dominant element being the type of spirit it is (eg. if a spirit is 20% water, 10% life, and 70% wind, it is a Wind Spirit). Spirits are natural inhabitants of the Faerealm, but some are able to remain corporeal in the physical world.
Spirits come into being similar to how clouds form in the physical world. They are the accumulation of elemental energy amassed into a single form. Every spirit has to consist of some percentage of Life spirit, to give it consciousness. Some spirits form fully formed, while some form as very simple spirits and accumulate more energy and grow
Spirits do have a finite life span, and can also die from physical trauma, much like any mortal creature. When a spirit dies, the elements that compose it disperse and are returned to the Faerealm, where they can continue their cycle of death and rebirth again.
The element of Fire was destroyed nearly a thousand years ago, by the monk Lenna from Cel'Edor. To stop the demon that infested the Fire Elemental, Syndra, Lenna received the blessing of the other elementals to destroy Syndra. This had the unintended consequence of Fire being removed from the Faerealm, being replaced with the much less potent element of Ash. This caused all the remaining fire spirits to turn into Ash spirits.
An Elemental is a special type of spirit. Of all the spirits of a particular element, the Elemental is the spirit that best represents the nature of that element. Typically, this means the spirit with the highest percentage a particular element, relative to the rest of its composition.
An Elemental has the special ability to deem humanoids their 'champion', which allows the to imbue a part of their element onto their champion's soul.
If a Spirit dies somewhere other than the Faerealm, their essence can't return and is instead trapped where ever they died. Their essence would likely latch on to surrounding plants and animals. Occasionally, if enough spirit energy entered the body of a mortal creature, it may develop unnatural powers, like sorcerery. Before their essence can bond with something, the spirit's energy will sometimes continue to shamble around the world like a ghost. These are known as Wisps.
If a Spirit spends enough time in the physical realm, the spirit becomes more physical that spiritual. If the spirit can manage to stay alive long enough, it eventually turns into a Genasi; the physical and mortal equivalent of a spirit. These mortal beings are very rare, as spirits in the physical realm have a finite lifespan.