The Kraalniik is a device meant to trap and store Aedra and Daedra.
Ferrin Spell-True created the Kraalniik using power that he gathered from Apocrypha. His brother (The Huntsmer) adds the power of the Forest of the Eternal Hunt to the stone as well. The stone is then bathed in the waters of the Mijae Court, the purest Magicka known to any living being. The stone, using two different Daedra's power, is meant to be used as a trap to control a Daedra known only as the Nightmare God.
Ferrin Spell-True succeeds in trapping the Nightmare God in the stone. The stone is then named the Kraalniik (God-Slaver in ancient Mijae). Ferrin soon finds out that the Kraalniik has the power to control the free will of the Altmer and forces the Altmer to obey the owner of the Kraalniik.
Ferrin uses this to his advantage and utilises the Kraalniik to sway the votes of his Altmer in his court. The Huntsmer finds out and steals the Kraalniik. He then uses it on Ferrin, forcing him to kill his family, proving that whoever holds the Kraalniik holds power to the Altmer. The Huntsmer kicks Ferrin out from the court and enslaves the Altmer, forcing them to serve Hircine.
For two centuries, The Huntsmer uses the Kraalniik to rule over the Altmer at the Mijae court, cutting them off from the rest of the world. When the court is almost completely dead, The Huntsmer in anger throws the Kraalniik into the waters of the Mijae, presumably dissolving it. The Kraalniik proves to be able to resist the purity of the waters and is then found by Ferrin again, who was teleported back to the court by the Huntsmer.
After a long battle between the two brothers, The Kraalniik is taken by Ferrin once again. Ferrin brings it to the Imperial City and there uses it to gain control of all the Thalmor in Cyrodiil. Ferrin succeeds and utilises his Magicka to destroy all the Thalmor in Cyrodiil. Ferrin kills himself and presumably the Kraalniik.
Ten years later, the Kraalniik ressurects Ferrin and vanishes. Ferrin finds the Kraalniik to be breaking, as the Nightmare God has been slowly corrupting it. It is destroyed by Ferrin, unleashing the Nightmare God into Oblivion.