Lachdanan was a pious knight and servant of King Leoric's, who survived a disastrous attack against Westmarch only to return to find his king had finally turned all the way into a raving madman. The king, his mind destroyed after struggling against Diablo's power, ordered his remaining warriors to attack Lachdanan and his company, but Lachdanan prevailed, finally slaying the king himself. As he died, Leoric cursed Lachdanan into eternal damnation for his "treachery".
He is encountered in the lowest levels of Hell as a benevolent Steel Lord. He imparts his tragic tale to the player, and implores him to find a Golden Elixir capable of purifying his cursed soul and putting him to rest. If this is accomplished, Lachdanan swears that if there is a way to repay him/her from beyond the grave, he will find it. In the interim, he presents you with his unique helm, the Veil of Steel, before presumably committing suicide in his new demonic form.
This is just part of the material available on this topic. The Lachdanan article is available in the Diablo 2 wiki, which has a specific Diablo I and Diablo II focus. A lot of information unique to the first two Diablo games is available there. You can find it here:
- Diablo2.DiabloWiki.net/ .