The Blood Beast was an unpredictable and extremely dangerous creature, created by the Sisters of the Dark, using dark talents not invoked since the Great War, on the orders of Emperor Jagang. It was created using the souls of the gifted.
The blood beast was a changing creature with no set form or nature. It had the ability to travel the Underworld, so as to appear anywhere in the world of the living, even after being a great distance from that location.
The beast was created to hunt down and kill Richard Rahl. After its creation, it took the next time Richard used his gift to lock its senses onto him, so as to be able to track him anywhere. Shortly after doing so, Richard was nearly killed by an arrow. The former Sister of the Dark, Nicci, was forced to use her Subtractive Magic, to clear Richard's lungs of blood, giving the beast a taste of Richard's blood, because of Subtractive Magic's link to the underworld. After receiving this taste, the beast mutated into the blood beast, becoming even further intent on destroying Richard Rahl.
Every time Richard tried to kill the beast, it would simply appear later in another form. Eventually, Richard destroyed it when it followed him into the underworld by thrusting Additive Magic in it. In the underworld, Additive Magic can't exist, so the beast ceased to exist as well.