The Land of the Dead is presented as a bridging place between life and death. After people die, they are brought to the Land of the Dead by travel agents (more commonly known in the Land of the Living as grim reapers) to arrange their journey through the Land of the Dead to get to the Ninth Underworld, a Land of Eternal Rest. It is stated that the travel times can take up to four years for people who do not qualify for travel packages, and only four minutes for those who quality for the Number Nine Express Train.
It is explicitly stated that Manny Calavera works at the Department of Death as he is paying off a debt for something that he did wrong in his life. Other people have chosen not to journey to the Ninth Underworld instead choosing to permanently inhabit the Land of the Dead, and have transformed the land presumably from a wasteland meant to test the newly departed, to something approximating Earth.
As well as the dead, the land is also inhabited by a number of daemons, that seem to all have a particular reason for being there, be it driving, waiting tables or building ships. It is not known how those daemons came to be in the land of the dead, but their very specific purposes seem to imply that they are somehow summoned to be there by the dead.