Davenmor and Barrowgrim are enemies. They both have allies in the Circle of Mages, but Barrowgrim's ally Volgar defeats Davenmor's ally Galdryn (the battle between the mages is what you see during the opening cinematic sequence). Without magical support, Davenmor is forced to make concessions to Barrowgrim, including offering up his daughter Ellowyn for marriage.
Ellowyn, of course, doesn't want to marry Barrowgrim. She wants to marry Valdane Graemare, the captain of Davenmor's guards. When Davenmor learns of this, he arrests Valdane and places him under arrest. Ellowyn, enraged, disappears from the castle.
Barrowgrim hears of Ellowyn's disappearance and decides that it means that Davenmor is planning to go back on his word, and so he puts his troops into motion, and they start marching on Fargrove, where Davenmor's castle is located. You start the game just north of Fargrove.
His armies defeated, Lord Davenmor was forced to undertake desperate measures to stave the onslaught of Lord Barrowgrim's marauders and save his kingdom. It had begun as a war over who would rule the Circle of Mages, either Lord Davenmor's powerful ally, Galdryn of the Meadows, or the sage of Barrowgrim's kingdom, the arch-wizard Volgar. In a daring coup, Volgar was able to convince a few allies within the Circle of Mages to join his side and betray Galdryn, thus luring the unsuspecting wizard into a crippling trap that stripped him of all magical artifacts and talismans. The source of his powers confiscated, Galdryn fell easy prey to the dark conspirators within the Circle. With Galdryn vanquished, soon Lord Davenmor's troops were being overrun and slaughtered, and thus he had no choice but to make a declaration conceding victory to Lord Barrowgrim and Volgar.
But the taste of blood was not easily quenched in Barrowgrim, and he demanded a special prize from Davenmor, one that would proclaim to all his dominion over the fallen king -- nothing less than the hand of Lord Davenmor's daughter, Ellowyn, in marriage. Only by this pledge would Barrowgrim call off his legions of terror. But unbeknownst to either Lord, Ellowyn had already sworn her love to Valdane, captain of Lord Davenmor's royal guard, son of Lord Graemare of the northlands. Upon hearing his daughter's refusal to honor his demand that she marry Lord Barrowgrim, and the confession of her true love for Valdane, Lord Davenmor grew furious. He ordered Valdane to be stripped of his rank and arrested, to be imprisoned within the distant shadowy moors inside a dungeon long forgotten. Ellowyn's wrath fell full upon her father, and she swore that if Valdane could not have her, no one would. She fled from the room in tears, and the next morning it was discovered that she was gone.
Now Lord Davenmor lies deep in a trap of his own making, for upon learning of Ellowyn's disappearance, Lord Barrowgrim has accused Lord Davenmor of treachery in a ruse to conceal his daughter, and has once again ordered his army of death to the kingdom's door. Over the lands ride hordes of night-warriors, demons, undead servants, goblin orcs, shadow creatures, troll giants, and monstrous terrors. Only by finding his daughter and convincing her to honor his pledge to Barrowgrim can Lord Davenmor hope to save his kingdom from the impending nightmare that looms at the hands of Barrowgrim's army of abominations. For aided by the power of the Circle of Mages under Volgar, they have become unstoppable.
But all is not yet lost. Lord Graemare of the northlands has dispatched an agent to find his imprisoned son, Valdane, promising assistance to anyone who can free him. Deep within the woodlands, high upon the mountains, and deep within the moors, there are those among the Elves, Dwarves, and Demigoths who can be persuaded to stand and fight back. And there remains in secret a few within the Circle Of Mages that despise Lord Barrowgrim and Volgar, and might come to the aid of one brave enough to challenge them, should they prove strong enough. Lord Davenmor is desperate, and will do anything to secure his daughter's safe return. If only she can be found. If only she can survive long enough.
Thus begins Dungeon Lords: The Kingdom Cracked, a tale of love, hate, betrayal, revenge, and evil.