The city of Roshamuul was built long ago in a time of great war by beings known as DreamVampires (not yet present in the game). The race used dreams as raw material for power and, together with other demons that inhabited the city, the DreamVampires made a pact and alliance with them, as they followed the same belief, in this case the great Zathroth, a God of destruction (not yet physically present in the game, only in the story told within it).
As these demons and the DreamVampires used stolen dreams as a source of life and power, they created a machine called The Dreamcatcher Device, and this power ended up becoming so strong that they could end up controlling the wars. This machine had such great power that it ended up falling into the hands of a demon called Bazir (who has not yet appeared in the game) and he used it as a weapon, thus killing all the DreamVampires, and the city is now dominated by demons that still roam there.
Very briefly!!!
Source: Tibiawiki.com.br