Souls were the life essences that constituted part of the definition of an individual; they contained a being's conscience – that is to say, their instinctual capacity to be governed by the traditional human philosophies of "right" and "wrong."
The origins of souls were never made clear. Angel and Darla's son, Connor, was presented with a soul some time before birth, although it was was not stated whether or not this was due to Connor's special status as the child of two vampires, or whether he was a unique example. There was at least one recorded case of a human boy born without a soul.
Good and Evil
- "When you become a vampire the demon takes your body, but it doesn't get your soul. That's gone! No conscience, no remorse... It's an easy way to live. You have no idea what it's like to have done the things I've done... and to care."
Souled beings were defined by possessing the moral capacity to be governed by the moral values of "right" and "wrong." As such, they were commonly associated with good, while soullessness was associated with evil; however, this was a rather fallacious statement, as ensouled creatures were still capable of acts of great evil, and traditionally soulless beings possessed the capacity for ethicality and even virtuousness under the right set of circumstances. It was therefore more accurate to affirm that while souls did grant a creature that ability to accept morality, they did not govern that creature's decision to abide by it.
In general, soulless beings—namely vampires—identified as completely immoral, and were able to kill, maim and torture without the restriction of remorse. Still, they were shown to understand the nature of evil. It was perhaps more factual to state that they simply did not concern themselves with it. There was at least one case of a vampire denying his soulless instincts; though he was in large-part aided by the behavior chip that restricted him from acting out through physical pain, he remained proof that a strong enough motivation to do good could partly overcome simple soullessness. Once re-ensouled, vampires became haunted by their past sins; the returning of a soul could therefore be a very traumatic event for demons, as was witnessed in the cases of all four former members of the Whirlwind.
D'Hoffryn explicitly stated that Vengeance demons have souls, which, along with their lives, are claimed by the Fates should any vengeance demon wish to reverse her work that resulted to several human lives. 
Angel's soul was cursed upon him by Gypsies as a punishment for brutally murdering one of their clanswoman. He was forced by his restored conscience to reconcile with his sinful past; however, the curse came with an additional danger: Angel could never experience true happiness, as it would result in the removal of his soul. Angel lost his soul twice: first, when he slept with Buffy Summers, and again, due to a spell. On both occasions, he reverted to his identity as the murderous and twisted Angelus, and sought to sadistically punish the people around him until his soul was restored again. Unlike Spike or Darla, Angel seemed to possess two distinct personalities that surfaced depending on the state of his ensoulment; Angelus was distinctly evil and took pleasure in his victims' suffering, while Angel remained constantly driven by his conscience to help people in need. The two typically shared memories and experiences, but his confrontation with the the Beast—during which only Angelus could recall information related to the demon—suggested that Angelus did not exist to some extent when Angel was in control of his body. Still, Angelus has stated on numerous occasions that he was always within Angel, trapped by the presence of Angel's soul. Most other evidence lead to this conclusion, as Angelus was briefly able to take control of Angel's form without having his soul removed while he was being driven to derangement by the addition of Rupert Giles' soul in his body.
When Darla was resurrected as a human by Wolfram & Hart, she returned with her soul intact. Although it took her time to fully acknowledge the presence of her soul, she became increasingly guilt-ridden as a result of her vampiric history. Just as she had managed to accept her human fate and embrace her soul, Lindsey McDonald had Drusilla sire Darla once more. Some time later, Darla returned to Angel and his friends pregnant with Connor, the son she and Angel had somehow managed to conceive. She became increasingly influenced by the soul of her unborn child, and developed the ability to express genuine emotion once more. Afraid she would be incapable of loving her son after his birth and unable to naturally deliver him, she staked herself in one final act of redemption, and placed him in Angel's care.
As opposed to Angel or Darla, Spike proved capable of doing good even without his soul. However, characteristic of a soulless demon, he only did 'good' when it benefitted him or those he cared for (Buffy, Dawn). Immediately after he was turned, he retained affection for his mother, and formed a strong connection with Drusilla, whom he viewed as his savior. Much later, he purposely regained his soul to prove his worth to Buffy, and while it tested his sanity at first, he was able to recover and become a Champion in his own right. While Spike's possession of his soul did not significantly alter his core persona, he did begin to doubt himself more often, and lost much of the confidence he had maintained during his years as a soulless vampire, becoming somewhat insecure. Naturally, he was also more prone to spells of depression and guilt, though not to the extent of Angel. Faith Lehane even commented twice that he had become more like Angel since the regaining of his soul, much to his irritation. Still, he showed to be a capable hero both with and without his soul; one could even say that he did not achieve redemption because he won back his soul, but rather, he earned redemption on his own and was prompted to regain his soul to reassure both himself and others of his integrity. If Spike lost his soul (as briefly occurred when he was in Las Vegas), he did not become purely evil and sadistic, as he had overcome his demonic nature to a certain extent without it; however, he did prove more willing to make questionable decisions. Despite the general balance between his soulless and soulled selves, Spike appeared to fear losing his soul again.
Drusilla became ensouled by Willow Rosenberg in Las Vegas per Spike's request; however, the restoration of her conscience proved to be too traumatic for her damaged mind. Drusilla was so tormented by the guilt of her victims that Spike decided to take his soul back from her, as she was more stable without it.
Ryan Anderson was a human boy born without a soul. Replicating many of the tendencies found medically in Sociopathy he was incapable of remorse or sadness, and was quick to anger, attempting to kill his sister merely because she received more marshmallows in her hot chocolate than he did. He was possessed by an Ethros demon, who became terrified of the boy's soulless nature, which he described as a literal "void". The demon sent messages for help simply so that he could be exorcised and killed.
A soul was the most necessary component to resurrection. As Spike aptly put it, the body was simply "the tip of the theological iceberg." A body could either be magically recreated (such as with Darla) or restored (such as with Buffy), but without a soul, there could be no resurrection, and a zombie was very often created as a result.
Rituals of Resurrection and Restoration
Apart from the rituals of resurrection that involved a soul being returned to a deceased body, there were numerous other spells and rituals that also involved the manipulation of souls. The Algurian Body-Switching Spell caused two souls to switch bodies, though the body of the individual who did not cast the spell would collapse after an extended period of time; the Ritual of Mok'tagar allowed a Mok'tagar Demon to steal and use a human's soul, and the Ritual of Restoration allowed a vampire's soul to re-enter his or her body, though Angel was the only vampire known to have been successfully treated with this spell.After murdering Rupert Giles, Angel was able to use an item known as the Tooth of Ammuk to absorb the fragments of his soul; he visited different locations significant to Giles in order to assemble his soul in the hopes of returning him to life again. The pieces rejoined within Angel's body, causing him to take on Giles' habits (drinking tea, speaking in a British accent and wearing glasses). Giles' soul eventually began to cause conflict with Angel's other inner-beings, and his friends were forced to store it within an object called the Essuary instead.
The demon Jenoff was known for making deals with others where he would acquire them particular merchandise in exchange for their souls at some future date, but it was never specified whether he used any particular ritual for this; the only shown example of this deal being made was with Charles Gunn and the only part of the ritual shown was the initial handshake to seal the deal, Gunn managing to escape the contract when the rest of Angel Investigations helped him defeat Jenoff when Jenoff sought to collect.
DestructionThe permenent destruction of a soul was possible. According to Alasdair Coames, Enders obliterate souls upon consuming them.
Wo-Pang claimed after extracting and temporarily housing Angel's soul in a glass jar that it would be possible for the soul to be destroyed, though the specific parameters for such a destruction were not made clear, with Jasmine merely keeping the soul as a bargaining chip against Angelus rather than destroying it to prevent Angel from returning (Although her weakened power in Cordelia's body may have prevented her from destroying it).
Other cases of supposed soul "destruction" were less clear, usually where soul 'consumption' is concerned. When Winifred Burkle was used as a host to restore the Old One Illyria, her soul was apparently consumed by the strain of resurrecting Illyria in her body, rendering it impossible for her to be resurrected or go on to an afterlife, at least according to Doctor Sparrow. Illyria possessed Fred's memories, and even reverted to Fred's appearance and personality on more than one occasion, but these were confirmed to have been mere remnants of Fred rather than a sign that her soul still existed as an entity in itself.
Additionally, while Angel Investigations confronted Soul Eaters on at least two occasions, it was never specified whether the demon feeding permanently destroyed the soul it consumed, or if the soul was eventually allowed to pass on after it was 'digested', or released intact or not when its consuming demon dies.
Angel, Cordelia and Doyle investigated a case involving a demonic black market where souls were brought and sold after being extracted via a complex device and contained in jars, with 'rare' souls—such as the soul of an innocent child or a saint—being particularly valuable. This encounter also pitted them against Shug, the last of the demonic race known as the Kurgarru, who consumed the souls of other beings to survive; Shug, the last of his kind, survived by violating his species' most sacred rule and devouring the souls of his own family, eventually escaping to Earth. Shug attempted to take Angel's soul so that he could consume it, but he was killed by his traitorous partner, who was disgusted at Shug's decrepit present state and preferred the possible financial opportunities that would be offered by the bidding war on such a unique soul as Angel's, his partner being killed by Angel to reclaim the soul of a young girl. It was presumed that the deaths of Shug and his business partner resulted in the end of the trade in souls as they were the key players in the black market, and showed no signs of having heirs to carry on their work.