There exists two beings for each protocrystal avatar: one that is one of the original gods, and the other is a living being (as seen in the avatar legends). During the Meltdown, the energy of the protocrystals (or some other sources of elemental energy that the Zilart extracted from the five mothercrystals) was simultaneously released. Over the centuries, that energy accumulated inside the bodies of the living beings on this planet, causing them to crystallize. Thus they took the form of the protocrystals with the celestial avatars residing. The avatars' souls are probably that of the gods where their body is that of the lifeforces they "merged" with.
The sleeping gods call each other "the true gods" whereas they call the terrestrial avatars "the false gods" and look down on all who came after them.
The sleeping gods are currently in a slumber. When energy is sapped from them (such as by obtaining the "whisper" or "eye" key items), they are closer to awakening. When they awaken, they will try to restore Vana'diel to its original state (known as "paradise") which would only allow for Zilart and gods to live freely (and reduce the terrestrial avatars to mere beasts). It would also allow for the resurrection and death of Promathia, which would bring about the end of Vana'diel.
The sleeping gods also desire to restore the power of the "divided god" which is presumably the key to restoring paradise. The god is, more likely than not, Promathia, as a part of him is found in every lifeforce. Another, less likely possibility is Alexander, or it could just be their name for the true mothercrystal "Great Crystal" (before it was split into five parts by Altana in an effort to keep Promathia alive).
The Zilart also used the power of the sleeping gods to help heal Vana'diel after the war between the wyrms and the Zilart.
SPOILER WARNING: Details about a quest, mission or other Final Fantasy XI in-game storyline follow.
