The Short Version
The native human population of what eventually became Karameikos were known as a Traldar, and lived a pitiful existence after the ancient empire they used to be a part of just plain disappeared. And then the Hutaaka -- a then-peaceful humanoid race with heads of Jackals who also lived in those lands -- discovered the Traldar communities and shared their knowledge and wisdom (granted by a mysterious Jackal-headed immortal) with the humans.
For a while, there was peace and prosperity.
Then gnoll tribes invaded, and the Hutaaka -- a race already sliding into decadence and apathy due to natural tendencies and the readily available subservient workforce provided by the humans -- fled to their hidden valley, leaving the humans to fend for themselves.
Betrayed by their jackal-headed masters and assaulted by dog-headed monster tribes, the humans rose up and fought back against all beast men and claimed the lands for themselves.
The Dark Corners Version
The early relationship between Hutakaa and Traldar was mutually beneficial at the start. However, the Hutaaka eventually saw and treated the Traldar as de facto slaves, rather than equals or partners.
Furthermore, the Traldar grew suspicious of the Hutaaka and fearful of their master and his gifts.
- that the Hutaaka had once been humans from distant lands and had traded their humanity for their advancement;
- that the lack of Hutaakan children was due to the fact that Hutaakans were born human and remained that way until they underwent a binding to the racial covenant;
- that once a year, on the anniversary of each Hutaakan's oathtaking, they reverted to pitiful, screaming human forms, begging for release from their torment but were bound into the faceless humanoid statues that decorated the hallways of their homes until they rededicated themselves to their god;
- that some were tempted by the taste of human flesh, and -- once succumbing to this temptation -- lost their wisdom and became barbaric shadows of their former selves.
The gnolls came - perhaps twisted Hutaaka, perhaps followers of a rival dog-headed god -- and began to attack Hutaaka and Traldar alike. The Hutaaka claimed to be a peace-loving race and fled, relying on human Traldar to defend the lands. But humans suspect that Hutaaka will not kill those who might be their family or friends in monstrous guise.
Heroes arose from the tribes of the Traldar and fought against all beast men to liberate the lands for all Traldar. But the Hutaaka and their god still haunt the lands of Karameikos from their hidden valley, seeking to stretch forth their influence once more.