According to legend, the world was the accidental result of a brawl between the Gods and the Demons. The inadvertent combination of Holy and Unholy magic combusted and created the planet upon which Vorpal Lhura rests. This is also why Elemental magic exists and is different from either Holy or Unholy magics - it was born of them both (well, from the world both created). Ditto Spirit magic - humans having been created when the Gods decided they had to take care of the world (and the Demons deciding they wanted to take the Gods' toy away from them), they also have a (different) mix of Holy and Unholy energies in them.
Magic and religion are very closely tied together, since the only two organized religions are the worship of the Gods and the worship of the Demons. Elves, Dwarves, and other beings who feel closer to the earth are likely to worship the earth's own power, and this makes them more likely to pick up Elemental magic, though it's not always true. And while no one denies that the Gods and Demons exist, there are always those who choose not to honor and worship any of them.
The majority of people will take any chance for a celebration they can get, and will always ask for help on high (or low) if they think there's a chance it'll work. So almost everyone celebrates every holiday (or unholiday, for the Demons), and almost everyone will pray to the appropriate God/Demon for favor in order to help themselves.