Souls is the currency of Demon's Souls.
Souls are required for players to become stronger in the game by raising their soul level as well as buying and upgrading Equipment. Players will lose all souls upon death, but may regain them by touching their bloodstain. They are lost permanently if the owner dies again before they reach their bloodstain.
Since the fall of the kingdom, souls have become the prime currency of the land. Merchants, who do not bear the skill to reap the souls of others be they sane or otherwise, sell goods in exchange for souls to preserve their sanity. Those who fail to maintain a steady flow of souls become insane and attack the sane due to their possession of souls. The insane do not recognize friend from foe, only distinguishing between those who have souls and those who do not.
The souls, as well as preserving sanity can be used as a power source, used to focus the power of magic. This magic is called Soul Power and imbues the self or the magic emanated from the self. This lead to the two branches of magic, known as the Soul Arts, which are sorcery and miracles. However all magic, be it 'holy' or unholy, is derived from the Old One because the Old One's presence is the source of magic.