The Netherworld is a place that exists somewhere between the Strange World universe and our own as well as all other universes and timelines. It seemingly serves as a Nexus point between all realities. Hercules was able to trap the Sovereign there for a time (HTLJ "Stranger in a Strange World") until Ares and Callisto released him only to trap both he and Hercules there again (HTLJ "Armageddon Now").
Normally, when a person dies in either our universe or the Strange World's universe, his or her counterpart dies in the other reality also. However, if one of those people is in the Netherworld they are no longer connected and bound by those rules. For example, when Iolaus died, Iolaus II survived by being in the Netherworld at the time (HTLJ "Stranger and Stranger") or when Ares of the regular universe killed Sovereign in Netherworld. Hercules could sense the death of the Sovereign but was unaffected by his death. Being in the Netherworld can also protect someone from changes in the timeline of a universe. For example, when Callisto went back in time and killed Alcmene/Alcmene II before Hercules/Sovereign was born, both the hero and the villain should have ceased to exist but because they were in the Netherworld at the time they were protected (HTLJ "Armageddon Now Part 2").
The Utma Dagger was sent to the Netherworld, so it couldn't fall into the wrong hands. Xena with the spirit of the Yakut managed to bring it to their universe. The Netherworld was shown as woods. (XWP "Lifeblood")
