Long ago, the current blood elf nation of Quel' Thalas was founded by a group of magic using night elves called the Highborne, who were loyal to magic and their former queen Azshara. They were banished from the rest of the night elves for using magic, as magic had led to the near total destruction of the night elf race. Sailing across the ocean to the continent of Lordaeron, the Highborne found Quel' Thalas and established their kingdom.
Converting their ways to being diurnal and worshipping light, the Highborne created a magical well that provided them magic and immortality, called the Sunwell. The Highborne also changed physically as well; their night elf purple skin turned white and peach colored like humans, and their hair turned from green, purple and blue to blonde, brown, black, and white. They became known as high elves. Under the rule of the royal Sunstrider family, the high elves prosepered peacefully in Quel' Thalas for thounsands of years, until they were disturbed by forest trolls.The trolls wanted the same land as the high elves, and were willing to fight for it. The high elves eventually found that they could not fight off the trolls alone. By teaching them of the ways of magic, the high elves recieved help from the humans of Lordaeron, and with their help, the high elves eventually defeated the forest trolls. Hundreds of years later, the high elves were disturbed once again, though this time, their foes would devastate them; the undead Scourge was not a merciful army. Led by Arthas and Kel' Thuzad, the Scourge tore through the forests of Quel' Thalas, creating total war. The Scourge smashed through the Eversong woods, through the glorious city of Silvermoon, and to the Sunwell, where Kel' Thuzad was brought back to life as a lich by using the Sunwell's magic. The Sunwell tainted, magic was no longer available to the high elves. One individual who stood out in the fight against the Scourge is Sylvanas Windrunner, who fought valiantly, but as she died she was brought back to life as a banshee (she now is the queen of the Forsaken undead).
After the destruction of Quel' Thalas, the prince of the high elves, Kael' Thas Sunstrider, returned to Quel' Thalas to find his home destroyed and in ruins. He swore to avenge the fallen and renamed his people the blood elves, or Sin' dorei, which means 'children of the blood'. This name was chosen in memory of the high elves who had fallen in the total war. Kael allied with the humans in a campaign against the Scourge, but was treated with racism and unfairness. Without help, the blood elves would surely die. So, Kael resorted to the help of the naga, a reptilian people who lived underwater. When the human commander Garithos discovered that the blood elves were recieving help, he sentenced them to death. In order to save their new allies, the naga released the blood elves from prison and took them through a portal to the Outland, where the blood elves joined the former night elf Illadain (aka the Betrayer).
Kael' Thas sent word back to Quel' Thalas through a single blood elf named Rommath, who reported that there was hope that the blood elves could use magic again. Rommath taught the blood elves in
Quel' Thalas of using demonic energies as their magical resource. Now, the blood elves have rebuilt most of their lands and are able to use magic once again. On Azeroth, the blood elves are led by Regent Lord Lor' themar Theron, and have joined the orcs, tauren, trolls, undead, goblins, etc. in the Horde.