The Clashcradyne setting consists of three parallel universes; known as the primal, the infernal, and the ethereal.
The primal universe is the oldest and biggest of the three, and is home to humans and any aliens that might be sharing it with us.
The infernal and ethereal universes are buds of the primal universe. The infernal universe is home to the demons, and the ethereal to the fae.
All three universes contain magic. The primal universe doesn't appear to contain any, because it is vast. The magic in our universe is spread so thinly it's unuseable for all practical purposes. The ethereal and infernal universes are tiny enough that magic is dense enough to exploit as an energy source.
(Humans do actually possess a nonzero amount of magic, and it is the magical anus smell.
If you scrounge your fingers around in your buttcrack through your clothes, some of the smell will somehow transfer to your fingers, even through multiple layers of clothing. This is physically impossible, and the process is entirely magical.)
The inhabitants of the primal universe (humans, spiders, geese, possible aliens, etc.) are defined as being entirely physical. Consciousness is electro-chemical and cannot be separated from the meat shell.
The inhabitants of the infernal universe (demons) are defined as being both physical and spirit. Consciousness is spirit-based, and therefore can persist without distortion even during near-destruction of the meat shell.
The inhabitants of the ethereal universe (fae) are defined as being entirely spirit. They have no permanent meat shell, and are therefore not alive (no metabolic processes). They do not have distinct 'selves', merging and splitting as required. To interact with physical objects, they must inhabit a temporary body made of matter.
Dragons are former demons who defected to the fae.
The fae once attempted to invade the human world. Their aim was to claim the primal lifeforms' biomass for the ethereals, and use this to become dual flesh-and-spirit creatures on equal footing with the demons. The demons fought against this (more out of their own interests in stopping competition than out of sympathy with humans). Later, the demons made a pact with the humans: demons allow themselves to be summoned by humans, on condition that humanity sides with the infernal world against the ethereal. With this, the demons hoped to prevent a recurrence of the fae invasion (because the fae would be put off by the combined might of demons and humanity) and to prevent humanity forming an unfernal alliance with the fae against the infernal world (because in doing so humanity would lose the support of summonable demons that they had come to enjoy).
Demons and fae regard humans with mild revulsion, because humans manage to be conscious despite being pure meat and having no spirit.