The Sin War was time period in Sanctuary's early history which began shortly after the Burning Hells became aware of Sanctuary's existence. This led to them creating the Triune, a religion aimed at turning humanity into servants of Hell. Their efforts were countered by Inarius who started his own religion, the Cathedral of Light, in order to combat Hell's growing influence. In their struggle a human by the name of Uldyssian rose from his simple farmer background. He was the first to have the powers of the nephalem awakened inside of him, and realizing that both the Cathedral and Triune were fronts for more sinister beings, he gathered other individuals like him and waged war against the two great religions. This conflict was the Sin War, and it culminated with both Heaven and Hell invading Sanctuary and shortly thereafter being thwarted singlehandedly by Uldyssian, who had at that point acquired god-like powers. His effort ultimately destroyed him, and led both the High Heavens and the Burning Hells into a permanent peace treaty, which has lasted to the present day.
The Sin War was made possible by the actions of Jere Harash, the Vizjerei mage who summoned the first demon to Sanctuary. While this did not set off the war, it did alert the Prime Evils of Sanctuary's existence and led them to quickly form the Triune in the region of Kehjan, a religion outwardly symbolizing and cherishing mankinds inner strength and potential, but which secretly recruited it's inner circle to join forces with the Burning Hells. The faith was in fact led by Lucion, the son of Mephisto.
The religion rapidly grew in power and quickly came to upset the power balance of the world, particularly that of the Mage Clans which had this far held sway over much of the population. The Triune was careful to act from the shadows however, as they feared what would happen if Heaven were to discover Sanctuary's existence. For this reason, they kept it's existence a secret to almost all of their demonic servants.
Inarius, the last rebel left on Sanctuary and easily its most powerful being, immediately saw the Triune for what it was. He realized as well that Heaven were not yet aware of their existence, and fearful of the consequences should they discover it, he too began to wage war with Hell indirectly by forming his own religion, the Cathedral of Light. He led this faith personally, but through the guise of the Prophet, a beautiful youth who never aged. This marked the true beginning of the Sin War.
 The War
For a time the two powers of Sanctuary would vie for control over it's inhabitants through public preaching and sermons while also covertly fighting each other out of the public eye. Into this battle would stubmle a human named Uldyssian, and he would come to change and eventually end the entire conflict.
Originally a farmer, Uldyssian grew up with his brother Mendeln and childhood friends Achilios and Serenthia in a small village called Seram. Wrongfully accused of two murders, Uldyssian suddenly displays strange powers which allows him to escape his own beheading. Shunned by his home and now hunted by both the religions, he and his friends, along with a mysterious woman named Lylia, flee Seram. Lylia and Uldyssian quickly become lovers, and she convinces him that this power in him is a gift that should be awoken in all humans. With her support, he embarks on a task to teach other humans how to awaken these powers.
His efforts turn out to work, which quickly earns him a devoted following. He decides to call them the edyrem, and they soon grow in size. The Cathedral and particularly the Triune are not pleased by this development and harry him at every turn. Particularly the Triune, led by Lucion, take an interest in Uldyssian and attempts to both seize and kill him on multiple occassions. This eventually leads to the revelation that the Triune isn't what it claims to be, but rather a front for the Burning Hells. Horrified by this, Uldyssian and his followers declare war against the Triune, and in a confrontation with Lucion himself Uldyssian defeats him by causing him to "cease to exist".
During these events, it is furthermore revealed that Lylia was Lilith, Lucion's sister, in disguise all along, and that she used Uldyssian to set the world in chaos to further her own goals. She reveals that she was the one who awakened the powers in him, and though she leaves him in a state of doubt he belieaves himself to be rid of her. She secretly returns and possessed Serenthia however, and continue to manipulate Uldyssian without anyone's knowledge. Positioning herself as his right hand, she slowly beings to tie many of his followers closer and closer to her, all the while egging on the conflict against the Triune which is in disarray after the death of their leader.
Unaware of this, Ulddyssian is at this time contacted by Rathma, who wishes to bring him to the Worldstone. Wary of the strange man Uldyssian still obliges, and upon entering the Worldstone Chamber actually changes the very structure of it, something no one, not even Inarius, had ever managed to accomplish. This change undoes the dampening effect the Worldstone has long exerted on humanity, and instead causes their powers to grow at a faster rate.
Uldyssian is eventually saved by his brother Mendeln, who together with Achilios expose Lilith for what she is to the rest of the edyrem. Mendeln has since leaving Seram come into contact with both Rathma and Trag'Oul, and have in secret become a necromancer adept. With the aid of his teachers he is shown the facade that Lilith has held, and with Achilios aid they manage to drive her from Serenthia's body. Finally liberated from the grasp of the demoness, the edyrem march to the Grand Temple of Triune and raze it to the ground, thereby effectively ending the Triune.
During all of these events, Inarius has taken a more passive role but finally decides to act. Fearful of Uldyssian and what he represents, yet afraid to admit this to himself, he tries to forcefully stop the edyrem. The follower of Uldyssian, and particularly Uldyssian himself, have however become far too strong at the conflict eventually leads to a clash between Inarius and Uldyssian directly. Both fueled by the power of the Worldstone, but in two different ways, the beings clash with each other. As their battle rages however, the Heavenly Host, having finally found Sanctuary, descends upon the mortal realm only to meet the forces of the Burning Hells who had been prepared for such an event.
In the face of this sudden destruction that envelops Sanctuary, Uldyssian despairs. Yet Inarius, blinded by his own pride and madness at this point, continues the battle. In this desperate situation, Uldyssian manages to draw on such vast powers within himself as to dwarf all other beings. He suddenly defeats Inarius with ease, forces the entirely to the Heavenly Host and the demons back out of Sanctuary and undid all the damages the sudden and brief invasion caused. The effort took it's too on him however, and faced with possibly destroying the world with his unbridled power, he chose instead to end his own existence.
Following Uldyssian's death, the Angiris Council descended down to Sanctuary to decide what should be done with it. The display of power that Uldyssian had demonstrated created cause for alarm amongst the councilors, and a vote was held by the five members whether to allow Sanctuary to continue to exist. Imperius was in favor of destroying it, while both Auriel and Itherael supported its continued existence. Malthael abstained his vote.
Thus it came to Tyrael, the last Angiris member. Imperius was confident that Tyrael would side with him, as Tyrael had indeed found humans an abomination of demon blood just like Imperius. But Tyrael was impressed with Uldyssians and other humans' great sacrifice for the benefit of others, and decided to side with Sanctuary. It was also agreed that all humans would be forced to forget the events of the Sin War, in order to be able to start anew. The only one who was apparently shielded from this was Mendeln, whos memories were kept intact by the intervetion of Trag'Oul.
 Old Lore
 Diablo I Manual
The concept of the Sin War has undergone major changes in the lore over the years. In the original Diablo I game the term referred to a much larger timespan, from the first contact between Heaven, Hell and Sanctuary to the present day. The Sin War was the term used to describe the constant battle Heaven and Hell waged over the dominion of man.
The following excerpt comes from the original Diablo I Manual:
The coming of the Great Conflict to the mortal realm is known as the Sin War. Angels and Demons, disguising themselves while traveling amongst men, attempted to secretly lure mortals to their respective causes. Over time, the forces of Darkness discovered that mortals responded much more to brute force than to subtle coercion, and so began to terrorize Man into submission. The Angels fought to defend humanity against this demonic oppression, but all too often their austere methods and severe punishments succeeded only in alienating those whom they sought to protect.
The violent battles of the Sin War occurred very often, but they were seldom witnessed by the prying eyes of Man. Only a few "enlightened" souls were aware of the supernatural beings that walked amongst the huddled masses of humanity. Powerful mortals arose and accepted the challenge of the Sin War, allying themselves with both sides in the Great Conflict. The legendary deeds of these great mortal warriors served to earn both the respect and hatred of the netherworlds. Although the lesser demons kneeled before those possessing power and strength, they also cursed the very existence of mortal man. Many of these fiends believed that the deadlock brought about by the emergence of Man was a perverse offense to their "higher" role in the great scheme of things.
This jealousy of Man led to harsh, atrocious acts of violence by the demons against the mortal realm. Some men learned of this deep hatred and used it against the denizens of the Underworld. One such mortal, Horazon the Summoner, delighted in summoning demons and then breaking them to his will. Horazon, along with his brother Bartuc, were members of the Eastern mage-clan known as the Vizjerei. This mystic clan studied the ways of demons and had catalogued their lore for generations. Empowered by this knowledge, Horazon was able to take the work of the Vizjerei and pervert it for his demented purposes. The denizens of Hell sought revenge against this bold mortal, but Horazon managed to keep himself well protected within his arcane sanctuary.
Bartuc, the brother of Horazon, was eventually lured to the side of Darkness. He was granted exceptional strength and longevity, and fought alongside the legions of Hell against the cursed Vizjerei, and eventually his own brother during the Sin War. Although Bartuc was renowned amongst the warriors of many realms, his dominance in battle came with a terrible price. An insatiable lust for mortal blood pervaded his every thought and deed. Bartuc soon became as fond of bathing in the blood of his enemies as he did of shedding it, and in time he came to be known only as the Warlord of Blood.
This text, from an in-game tome found in Diablo I, also mentions the Sin War in this manner:
All praises to Diablo - Lord of Terror and Survivor of the Dark Exile. When he awakened from his long slumber, my Lord and Master spoke to me of secrets that few mortals know. He told me the Kingdoms of the High Heavens and the Pits of the Burning Hells engage in an eternal war. He revealed the powers that have brought this discord to the realms of man. My Lord has named the battle for this world and all who exist here the Sin War.