Danalin is the God of Water. He and Tali, the trikster god of Air, were very close friends. He was among the least active in creation, choosing to keep to his people (The Aifons, men whose time with Danalin physically changed them to the point of being able to breath water as easily as air, and to build an undersea empire) instead of fighting other gods. He agreed to the Compact, thinking little of it because he had never really fought in the Godswar to begin with. He would come to regret this decision.
Some time in the Age of Magic, the Aifons faced a dire threat. The details of the history are murky, so we don't know what ecactly the threat was, but it threatened the Aifon's extinction. The Greatest Aifon Hero, Trenton Majosi, who had been trained as a master of Water magic by Kylorin himself, traveled throughout all of Erebus looking for salvation for his people. Eventually he found it: A Ritual that would allow him to summon his god himself into creation to save them all. He prepared (and perhaps began) to cast it, but them had a change of heart. Although he knew his people had no other hope, he came to realize that the threat of starting another Godswar was greater still, to all the peoples of Erebus. And so he chose not to cast it, and thus to let all his people die.
Danalin watched this all in horror, knowing there was nothing he could do to save the people he so loved. He weapt, and his silver tears streaked across the sky, where they still remain. He did not want to face a world free of Aifons, so he withdrew into himself, choosing to sleep indefinitely. And in this sleep, he dreamed.
Even in sleep, a god has great power. The power of his unconscious mind was manifested in creation, as his dreams came true. What did he dream of? Well, they say that everyone in our dreams really represent ourselves. In his case, he dreamed of a dreamer, who, like him, dreamed effectively. This man was Hemah.
However, his dreams were not entirely his own. With the Vault of Water dormant, Hastur, Lord of Nightmare, the Archangel of Mammon, the evil god of the Mind and Greed, snuck in and began to whisper in his ear. It is not within his power to control the mind of a god, but he does have undue influences. Thus, the Dreams of Danalin are now dark, and Hemah's nightmares have destroyed all he ever loved.
The Greatest, Darkest, Strongest Dreams of Hemah live on long after he awakens. These are the Overlords, the great power under the Aegean. Danalin is worshiped indirectly though these vile, chaotic, insane beings, who have driven his followers also into insanity. They are more influenced by Hastur than Danalin himself, but these are loyal to no gods.