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Soul Gems are magical objects that as you may have guessed, are used to contain souls for enchanting or for gaining even more power.
They are classified in categories based off of their size and capabilities. While soul gems can only take evil souls, outside the church and without grace. Only black souls can trap the souls of the good-natured and moral people.
Lesser- only take small animals
Petty- Can take medium sized animals
Common- Can take large sized animals and some neutral humans
Greater- Can take most people, unless they are very famous and powerful
Black- Can take any soul of a morally good person
Grand- Can take any soul of any stature.
Nobody really knows where they came from, they are only found in either the soul cairn or very deep underground. When trapped, you are taken to the Soul Cairn, a realm ran by the Ideal Masters.