The Ways were created in an "alternate" place. It was chosen because it had lots of room to grow things (like the Islands). Time has little to no meaning in the Ways indicating that mostly outside of a normal reality.

Mordeth corrupted the souls of an entire city, making the people turn on each other. What if The Ways is where those people's souls went when they died? Mashadar would essentially be the souls of the people of Aridhol whom Mordeth corrupted. It would explain why Fain/Mordeth was recognized and why he can seem to control Mashadar.