The Cataclysm refers to a devastating event that destroyed the Kingdom of Orr, greatest of the human kingdoms prior to the Charr invasion.
With the Orr Charr invasion force marching toward Arah, the Orrians were confident that the Orrian army could hold back the Charr, as the Charr has already fought one war against the Ascalonian army. The Charr quickly annihilated the Orrian army, however, and proceeded toward the gates of Arah. King Reza's (then the king of Orr) royal adviser, Vizier Khilbron, ventured into the deep catacombs beneath the city of the gods and took a forbidden scroll. Reading aloud the words, he unleashed a powerful magic and caused the Cataclysm, sinking most of the Orrian peninsula and with it the Charr. The Charr never stepped within Arah, but few regard what the Vizier did that day as the right choice. It is said that what remains above the sea of the Orrian peninsula is haunted by the Undead, those that either do not understand their fate enough to move on, or those that are too attached to their former lives to let go.
Warning: The following text contains spoilers relating to the plot of Nightfall.
Questing in the Realm of Torment reveals that a demonic agent of Abaddon, the demon Razakel in the human form of Terick, tricked Vizier Khilbron into using the destructive arcane spell as Abaddon wished Arah destroyed. Other quests also explain that the Charr invasion and the Searing were all created by servants of Abaddon as justification for Vizier Khilbron to read the spell.