The Underworld is where Grim became the Grim Reaper. It is also the setting for the episode Keeper of the Reaper, the first place Fred Fredburger was first introduced. It is also here in a flashback shown how Grim got to be the Grim Reaper, both forced by his parents and voted to be the Reaper.
Appearance
The Underworld follows classical depictions. It is a fiery, nearly barren land of death that is mostly covered with lava. Demons, monsters, and all other evil species reside in the Underworld. As Osiris is the Egyptian god of the afterlife and apparent ruler of the Underworld (mentioned in King Tooten Pooten), he is never mentioned in any mythology as the leader of the Underworld specifically.