At some point in the past, humankind caused an apocalypse that made the surface of the earth uninhabitable. We don't know the exact nature of that or how long ago it was; after that point, the survivors of humankind lived underground.
There were several different projects by different groups of scientists who were trying to find ways to either make the surface habitable again or modify humans so they could survive in that environment. One group found a massive, humanoid creature frozen in ice under the surface of the planet -- Uitsualnemetia -- and began experimenting with making genetically engineered creatures by combining human DNA with samples from Uitsualnemetia. That resulted in creating the decoys, also called proxies or demihumans, who are physically much stronger and more resistant than humans. The human researchers treated them as slaves and experimental tools.
A couple of the other projects included the creation of a weather-controlling satellite, Amaterasu, and Mito's "True Humanity Project", which was intended to modify humans to extend their lifespans and make them able to survive on the surface.
Skipping over some details, Uitsualnemetia woke up and cursed humanity by turning them into tatari, after which point the proxies escaped and began building their own civilization as it exists in the Utawarerumono games. Demihuman society now considers Uitsualnemetia and Onvitaikayan (their term for humans) to be gods; their myths say that Onvitaikayan created them, while Uitsualnemetia gave them their freedom and cast them out of paradise.