Life clay is only found on Athare, created by the world in an attempt to gather up ambient magic. On the day the fae stumbled across it they believed it was just normal clay, until they started trying to make things from it, and a newly made pot attempted to walk across the room. When this happened they started using life clay purely for making statues and statuettes, but not very often because they had no understanding of exactly what happened when they used it.
This changed when the other races discovered it existed. At first it was used purely to make little animal statuettes that could be used as companions, but then someone worked out that the little creatures could be taught to use different magical powers. Once this happened some of them were used to play large magic games that didn't have any victims, apart from the little clay creatures, and those that were damaged were usually discarded.
Many of the discarded creatures banded together and attempted to look after each other. They couldn't die, because they were made of clay, they didn't feel pain, but missing limbs did make life difficult for them. Some had lost little things, like ears, while other had lost legs and arms. A lot of them still had their magical abilities, but they were almost all battle magics so not much use when it came to making a life for themselves.