During a celebration put on by the Baron and lead by the priest Brackner, portals to the Shadowfell opened and the entire population was abducted. These new ‘recruits’ would have become a new undead army for the Obsidian Wolf if not for the combined effort of the Emerald Wolf and some of Nesser’s citizens who had been away fighting kobolds.
Apparently, Nesser was a sacrifice to the Obsidian Wolf in exchange for a steady flow of enchanted weaponry from the Shadowfell. The official story is that the generally unheard of town was wiped out by a kobold raid.
The galleon transporting the town’s population was grounded in the Shadowfell’s reflection of the Blackwaters and set ablaze. The fire killed many of the town’s people, but a large group of dragonborn managed to extinguish the flames and lead the survivors back onto the Lake of Souls. Their fate remains unknown.