To my knowledge, Felaryan hell hasn't been developed a lot.
So I'm taking a shot at it.
From what I can gather, eternity in hell just consists of appearing in the river Styx, being fished out by a demon, eaten then respawn and repeat. A lower level mage could do a similar thing with a tub of acid, a healing spell and a knock-out spell (although they might be a bit hard pressed to do it for eternity). The current way of hell doesn't appear to impart any benefit to the demons, apart from the satisfaction of a full stomach.
Demons (including succubi) should not there solely to punish them, although they would do that anyway. The goal of a demon is to lure souls into evil so they are sent to hell upon the death. When a soul arrives in hell, they are taken by the demon who lured them. The demon then consumes their soul.
(Since succubi are more developed than any other demon, I thought that including a more in depth explanation here was in order).
Succubi lure a victims by appearing to them in dreams. More powerful succubi can (and will) manifest themselves to their victims once they are sure they can seduce them fully. The succubi will then drain energy from their victim through intercourse. This slowly kills the victim. Once the victim is dead he/she descends to hell and is fully consumed by the succubus.
Since the smaller succubi cannot consume their victims, they have intercourse with them. But unlike in the material world, intercourse with a succubus in hell is extremely painful, since the soul can feel the energy being drained from them.
As a succubi grows in power it grows in size, allowing them to consume souls more easily. (it's much more efficient to eat them in one go).
A soul doesn't actually 'die.' They just dwindle as their energy is drained by their demon. The initial surge of energy imparted to a demon causes them to grow in size by a fair amount (example: consuming one soul causes a human size demon to double in size), but as the soul dwindles and becomes weaker, the energy that can be drained is much reduced. This causes some demons to shrink slightly as they can no longer maintain the amount of energy required to stay larger (the demon is previous example would now shrink to about 1.2x human size) . this also causes the soul hunger that all demons possess, the hunger to stay larger and become more powerful. The more souls a demon has consumed, the larger their base size is. However, once a demon reaches a certain size, the amount of energy imparted by an individual soul is relatively negligible and does not appear to alter size by any great degree. (their magic too is effected by the number of souls in possession).
As for the soul, being consumed by a demon is horrible in the extreme. Once their initial life energy is drained, they become less than wraiths, silently screaming as their life force is eternally ripped from their form. Some demons can cause living beings to experience the screams of their victims. This inevitably drive them suicidally insane.
Some larger and more powerful demons will steal unconsumed or semi-consumed souls from smaller demons, as the smaller demons can not challenger the greater power of the larger.
Other larger demons will offer 'protection' too smaller demons in trade for a cut of their victims. Sometimes this literally involves splitting a soul into 2 parts, which needles to say, is excruciating.
I'm not saying that the current hell sucks, just that it could be better.
I'll add more to this as I develop it further.
Subject: Hell just ain't Hellish enough 
Sat Oct 24, 2009 4:17 am
