There are two different, contradictory accounts that explain how the Millennium Items were created.
In an early chapter of the manga (Duel 14: The Man From Egypt (Part 2) in Volume 2: The Cards With Teeth), Shadi explains that the Millennium Items were created by the magicians of the pharaohs in Ancient Egypt to punish thieves who rob the pharaohs' tombs. Shadi says that this is written in the Pert Em Hiru, or Coming Forth By Day (the Egyptian title of The Book of The Dead). The first series anime also uses this story.
The later chapters of the manga (published as Yu-Gi-Oh! Millennium World in North America) and the second series anime explain the origin differently, performing a retcon. With Egypt under threat from invading armies 3,000 years ago (5,000 in English Version), the Pharaoh Akhenamkhanen (Aknamkanon in the English anime, Akunamkanon in the Japanese anime) sought to protect his land through mystical means, and laid down the command for the seven magical Millennium Items to be forged. Akhenamkhanen's brother, Akhenaden (Aknadin, Akunadin in the Japanese) was charged with creating the items, but Akhenaden refrained from informing his brother that in order to do so, ninety-nine human sacrifices were required. The village of Kul Elna became the victim of the Pharaoh's unwitting decree, as Akhenaden had them slaughtered, their blood, bone, and flesh melted in with the gold that was cast in the mystic rite that formed the items (in the English anime, to replace this gory concept, it is the spirits of the slaughtered which are harnessed to complete the rite that forges the items). The molten gold was poured into seven recesses sculpted into a stone slab - and thus, the Millennium Items were formed.
With Akhenamkhanen possessing the Millennium Pendant (Millennium Puzzle), the remaining six items were entrusted to his high priests, one of whom was Akhenaden, who took the Millennium Eyes, and another Siamun Muran (the previous incarnation of Solomon Moto) who took the Millennium Ankh, the other priests at that time remain unknown. Using the Items' combined power, the priests summoned Duel Monsters, at that time known as Ka (mind), and repelled the invaders from Egypt. Eventually, the former priests passed on their items to others - the Millennium Ring was held by Mahado (Mahad in English anime), the Millennium Rod by Seto (ancient version of Seto Kaiba), the Millennium Tauk (Millennium Necklace) by Isis, the Millennium Scales by Kalim (Karim), and Siamun Muran handed his Millennium Ankh to Shada, with Akhenaden retaining the Millennium Eye. However, upon discovering the dark truth behind the Items' creation, Akhenamkhanen attempted to atone by offering his soul up to the Egyptian Gods as penance, sparing his son from any future retribution for his own indirect actions. When his father died, the Pharaoh Atem was given the Millennium Pendant, and in time, the Millennium Rod passed to Seto, a young priest who was, unknown to everyone, including himself, the son of Akhenaden, who became a strong friend of Atem, though both young men remained unaware that they were cousins.
The stone slab in which the Millennium Items were forged, however, continued to lay in a tomb beneath Kul Elna. If the seven Items were ever returned to the slab, the door to the afterlife would be opened. Learning this, the sole survivor of the slaugher, Thief King Bakura, attempted to acquire the Items in order to commune with the demon Zorc Necrophades, and challenged Atem with his monstrous Ka Diabound, but was defeated through the power of the Egyptian Gods. Subsequently, he defeated Mahado and acquired the Millennium Ring, and then used it to corrupt Akhenaden's Millennium Eye, and in turn, his mind. Akhenaden wanted his son, Seto, to become the new Pharaoh, so he helped Bakura defeat the other priests and Atem, then he placed the Millennium Items upon the stone slab, summoning Zorc into the real world. Zorc attempted to decimate the planet, but Atem defeated him by fusing the three Egyptian Gods into Horakhty, Creator of Light. The Pharaoh created a binding spell that sealed Zorc and all the dark magics of the Shadow Games inside the Millennium Pendant, along with his own soul, and bound it with the power of his own name, which was then wiped from his memories. The Pendant was subsequently shattered, and became the Millennium Puzzle, which was entombed along with Atem's body in his crypt in the Valley of the Kings.
The magic of the Shadow Games was unleashed in the 20th Century when the Millennium Puzzle was solved by Yugi Mutou in the present day, and he embarked on a series of adventures that eventually resulted in the locations of the Millennium Items being revealed, and the three Egyptian God Cards coming into his possession. The power of the Egyptian God Cards unlocked the Pharaoh's lost memories, and he lived out the final days of his life once more, learning his lost name. Returning to Egypt, Atem placed the Millennium Items back upon the stone that they had been forged in, and with his name, opened the gateway to the afterworld once more, that he might travel to his eternal rest - on the condition that he was defeated in a duel, in a symbolic representation of "laying down his sword" and travelling to the afterlife in peace. Bested by Yugi, Atem rejoined his priests in the world beyond, and the temple crumbled to dust.
The primary power of the Millennium Items is to enact Shadow Games, transporting the players into an alternate realm if desired (the English-language anime's Shadow Realm), summoning real Duel Monsters, and inflicting "Penalty Games" upon the losers, making them suffer various different, but ironically fitting, punishments that affect both mind and body (although this could be Atem's dark sense of humor). They also seem to increase magical energy. Additionally, each Item possesses its own unique abilities.
Originally owned by Atem's (Yami Yugi's) father Aknamkhanan, who after sacrificing himself left it to Atem.
The Puzzle was eventually found by Sugoroku's grandson Yugi, a game expert who found it on a shelf in Sugoroku's game shop and, after eight years of trying, successfully reassembled the puzzle. Immediately, the magic of the Shadow Games was unlocked, and the soul of the Pharaoh, still dwelling within the puzzle, infused itself into Yugi's body, periodically taking control to challenge others to contests. (It should be noted that Yugi does not get taller when he uses the puzzle, but he is just standing in a different position as Yugi is stated to be the same height as the pharaoh in one of the data books). It would be some time before Yugi and his friends truly understood that a second personality was existing within Yugi, but once it became apparent, Yugi and the Pharaoh co-existed peacefully, and Yugi dedicated himself to helping the Pharaoh regain his memories and defeat the dark forces once again.
The Millennium Puzzle, in addition to holding the soul of the Pharaoh, was able to fulfill one wish of the one who solved it, and heighten its owner's chance of success in a game judging by his or her skill as well as the importance of the game at hand. It also, according to the game Yu-Gi-Oh: Forbidden Memories, holds the soul of Simon Muran, though it is unclear if he still resides within the Puzzle. It also allows the user to "mind-crush," separate the good and evil sides of someone and banish the evil side to the shadow realm. This is a very painful process not unlike a lobotomy, and will often leave its victims in comas, or at the very least unconscious for several hours. The hieroglyphics on the puzzle say, "The one who solves me shall gain the powers of knowledge and powers of darkness..."
The inside of the Millennium Puzzle looks like a big labyrinth with staircases and walkways that lead to unimaginable places. There are also doors that seem to lead everywhere. These rooms are meant to distract intruders from the Pharaoh's soul room, and are often filled with traps to catch those intruders. Yugi and the gang find themselves inside the Millennium Puzzle on a few occasions.
Not originally a puzzle, the Item was originally called the "Millennium Pyramid", as it was called by Mana in episode 216 of the second series. Only after the Pharaoh's soul was locked inside was it broken into a puzzle to be placed inside his tomb, most likely as an extra precaution to prevent the powers of the Shadow Games from being released.
The sinister Millennium Ring possessed the power to transfer a soul from a living being into another object, such as a Duel Monsters card, or a lead miniature. Additionally, it can split the soul of its owner into numerous fragments, which can in turn be transferred to other objects. It is this that makes it the most dangerous of the Millennium Items, since the demon Zorc Necrophades used its power to seal a fragment of his own soul into the ring. When the ring came to be held by the priest and sorcerer Mahado, he had to focus the majority of his magical energy on holding the evil magic of the ring at bay, preventing Zorc's soul from overtaking him and turning him against the Pharaoh.
When the traps set by Mahado failed to prevent the tomb-robber, Thief King Bakura, from desecrating the crypt of the former Pharaoh Ahknamkhanen, he redoubled his efforts to protect the tomb by having himself sealed inside it. As predicted, Thief King Bakura attacked him within the tomb, and Mahado ultimately lost the Shadow Game that they played, and the ring fell into Bakura's hands. He was subsequently able to use it and the other Millennium Items to resurrect Zorc, but the Pharaoh stopped the demon at the cost of his own soul. The precise fate of Thief King Bakura was never divulged - when Yugi and his friends watched the events of the past play out in the form of an interactive Shadow Game, his body was shown to turn to sand, but this was a symbolic representation of his "playing piece" being removed from the "board" of the game, and unlikely what truly befell him. Although it was never explained precisely how, it is apparent that Thief King Bakura's soul, or a portion thereof, was also sealed within the Millennium Ring.
The Ring went on to wander throughout history, passing from owner to owner - Yu-Gi-Oh! Capsule Monsters reveals that one of the past owners of the ring was Alexander the Great. The item brought him many victories, but began to twist and corrupt him, likely the influence of the spirit of the ring, although outright possession was never confirmed. Alexander's soul was also split by the Ring into two halves: one evil, one good. Alexander lost the Ring (to Shadi, it would seem) after failing a trial to prove he had earned the right to use the Ring, and it continued to wander throughout history until it eventually wound up in the hands of young Ryo Bakura, a gift from his father who acquired it on a trip to Egypt.
When Bakura crossed paths with Yugi and discovered that he possessed the Millennium Puzzle, the "Spirit of the Ring" - by all appearances, the soul of Thief King Bakura, having been taken over by the soul of Zorc - made Bakura his new permanent host and took over his body. He became the most constant foe of Yugi and his friends, regularly working behind the scenes in his attempts to acquire all the Millennium Items - a task made all the easier for him by the Ring's ability to detect other Items, its spikes independently moving to point out the direction of the Items. Also, when Yami Marik defeated Yami Bakura in a shadow duel, he took possession of the Ring.
Originally owned by Akhenaden in Ancient Egypt, the Millennium Eye was plucked from his socket by his own hands when the Items were gathered to free Zorc. It, like most of the remaining items, then came into the care of Shada's bloodline, who watched over the items. In the late 20th Century, the current guardian, Shadi, forced the Millennium Eye upon Maximillion Pegasus (Pegasus J. Crawford in the Japanese versions), who was wandering Egypt, searching for a way to restore his deceased love, Cecilia (Cyndia in the Japanese versions) to life, and was chosen by the Eye.
The Millennium Eye allows the user to read the minds of others, which gave Pegasus a great advantage in the Duel Monsters card game, as he would read his opponents' minds and deduce their strategies. Pegasus forced Yugi to participate in his Duelist Kingdom tournament by entrapping the soul of his grandfather, later doing the same to Mokuba and Seto Kaiba, but after being defeated in a Shadow Game by Yugi at the tournament's climax, he was confronted by Ryo Bakura, who tore out the Millennium Eye. Retaining possession of the Eye for a prolonged period, Bakura eventually gave it to Seto Kaiba as part of his plan to lure him into the ancient past. In the manga, as the modern Seto is not involved in this saga, Bakura instead gives the Eye to Yugi. After Yugi and his friends returned from Ancient Egypt, Kaiba gave the Millennium Eye to Yugi.
The first holder of the Millennium Key in Ancient Egypt was Siamun Muran, who called upon its power to summon Exodia, the Forbidden One, to battle. As an end result of that dedication, the Millennium Key became one of two items owned by the guardians of the Pharaoh's tomb throughout history. Owned in Ancient Egypt by the priest Shada, the Millennium Key remained safe throughout the years, guarded by his bloodline, eventually being held in the present day by Shadi. The Key has the shape of an ankh. Its primary unique ability is its power to unlock the doors of a person's soul, giving the user access to the "Room of the Soul," where their thoughts can be observed, or the "room" can even be "redecorated," allowing the user to alter a person's personality. Additionally, it can make the user, and others, invisible, possibly teleportation and may or may not allow them to sense any disruption of the Millennium Items' mystical energies that would be caused by an Item being taken from its rightful owner. The Key is also sometimes called the Millennium Ankh. Strangely enough, the Key is the only Millennium Item to not visibly feature the Wadjet Eye.
When the second owner of the Millennium Scales, the priest Kalim, fell to Dark Bakura (Yami Bakura) in Ancient Egypt, he gave the last of his energies, and the Scale, to Shadi, and consequently, along with his Millennium Key, they were kept safe throughout the ages, ending up in the hands of Shadi in the present day. The Millennium Scale can weigh a person's heart against the feather of Ma'at, the goddess of truth; if a person lies while being interrogated by the owner of the Scale, the side opposite of the feather will lower, as if weighted down by the person's sins, and if the side without the feather drops to the bottom, Ammit, the monster of the abyss, will consume the person's soul, giving modern science the assumption that the cause of "death" was a heart attack.
This item also contains the power of fusion, to be used on monsters in shadow games.
The second holder of the Millennium Rod in Ancient Egypt was the priest Seto, the Millennium Rod became one of two items owned by the guardians of the Pharaoh's tomb throughout history.
In recent times, when the next tomb-keeper in line, Marik Ishtar, was unwilling to perform his duty, he was overtaken by the dark side of his personality. This "Dark Marik" stole the Millennium Rod and slew his father with the dagger concealed in the rod's shaft (A feature cut from the American version of the Duel Monsters anime), only to then be sealed away within Marik's mind by his servant, Rishid (Odion in the English anime). Nevertheless, the evil part of his mind continued to influence Marik's actions, making him believe that the Pharaoh was responsible for all his pain, and he formed the Ghouls organization (Rare Hunters in the English anime, but Rare Hunter is also the title given to individual Ghouls members in the Japanese version) in order to acquire the three Egyptian God Cards, using the Millennium Rod's power to enslave and control minds, acting through many pawns, including Katsuya Jonouchi (Joey Wheeler). When Rishid was rendered comatose, Dark Marik emerged, but when he was defeated and banished by Yugi at the completion of the Battle City tournament, Marik was freed of his influence and gave Yugi the Millennium Rod. The Millennium Rod grants its owner the power telekinesis, telepathy, and to control others. Marik used this ability against Jonouchi during the Battle City arc. But as the Battle City tournament progressed the Rod began to serve Seto Kaiba. Showing him visions of the past, the Rod activated during Kaiba's duels with Ishizu and Yugi. The most likely explanation is the Millennium Rod responded to Kaiba since he is a descendent of the priest Seto, the original owner of the Rod. The Rod is sometimes referred to as the Millennium Sceptre.
Known as the Millennium Tauk in the Japanese-language version of the anime series, this Item was secondly owned by the Egyptian priestess Isis Ishtal, and became one of the two Items owned by the guardians of the Pharaoh's tomb throughout history, eventually coming to be owned by Marik's sister, Ishizu Ishtar. The necklace allows its user to see through time, offering glimpses of the past and near future - futures whose outcomes can only be altered through the use of other Millennium Items. Using it to foresee her victory against Seto Kaiba in the Battle City tournament, Ishizu handed the necklace over to Yugi when her vision failed to come true, knowing that the necklace would no longer respond to her.
Pyramid of Light
Appearing exclusively in Yu-Gi-Oh! The Movie: Pyramid of Light, the Pyramid of Light is not truly a Millennium Item; according to the novelization of the film, it was a failed attempt by Akhenaden (Aknadin in the English anime) to recreate the Millennium Puzzle for his son, Seto, to give him a power on a par with the Pharaoh, so that he might defeat him and assume the throne. The Pyramid was co-opted by the sorcerer, Anubis, who was then defeated in battle by the Pharaoh. Undaunted, however, Anubis sealed himself within the Millennium Puzzle alongside the Pharaoh and the other powers of the Shadow Games
Anubis sought to recreate his physical form by implanting a Duel Monsters card fashioned in the likeness of the Pyramid within the deck of Maximillion Pegasus, and then reanimating his own mummified remains, taking the Pyramid, which had been kept with them in his tomb. The Pyramid of Light card then fell into the hands of Seto Kaiba, who employed it during a duel with Yugi, using its ability to remove the Egyptian God cards from play. However, now that the Pyramid was in play, Anubis could draw on the life energies of the two combatants, steadily regenerating himself. Taking Kaiba's place in the duel, Anubis seemed defeated when the Blue Eyes Shining Dragon destroyed the Pyramid of Light card, taking the artifact itself with it, but Anubis's spirit remained within the jewel at its centre, reforming as a giant monster, which the Blue Eyes Shining Dragon then destroyed, shattering the jewel and destroying Anubis.