The Lords' Alliance was formed by the Lords of Men shortly after they defeated the last of the Colossi in Moruin. The Lords' Alliance represents their oath to protect civilization from harm by keeping the peace between their respective realms and vowing to come together to fight outsiders like the children of Asag in times of trouble.
When the Lords' Alliance was forged, a Justicar of the High People descended from the heavens to help them seal their oath. The Lords etched their seals into the Foundation Stone, magically reinforcing their oath in the Castle Moongarm.
The Lords' Alliance was broken by Lord Gazreth shortly after The Fall, when he declared himself Emperor of Arcadia with the Decree of the One God.