A kandarian demon (whose name some sources imply to be Dagan, but never mentioned in the film) was summoned from hell when Professor Knowby read a passage from the Necronomicon. Presumably four other weaker demons were summoned as well. The demon, referred to as "the evil", possessed Knowby's wife, Henrietta, turning her into a demon, where Knowby locked her in the cellar. Knowby was also killed by the evil, although he presumably was able to take away the evil's power.
When Ash, Linda, Cheryl, Shelly, and Scott played the recording, it awakened the evil again, giving it and the other four the license to possess the living. The main evil possessed the trees, and later the other four demons did the same to Cheryl, then Shelly, then Linda, and then Scott, who was killed by the trees earlier. Ash threw the Necronomicon into the fire to destroy the demon Cheryl and Scott (demon Linda and Shelly were both killed earlier). The evil then attacked Ash, ending the film.
It is presumed that the evil has the ability to possess others without entering their body itself (unlike the other four), as it does to the trees, and (as revealed in the next film), Henrietta and Ed.
The evil was able to temporarily possess Ash twice, but could not kill him upon possession or stay inside him forever, though the second time it took a necklace that reminded him of Linda to return him to normal. It did possess his hand, forcing him to cut it off with his chainsaw.
The evil also took the form of Ash's reflection, becoming Evil Ash for the first time, taunting him about hacking Linda up with a chainsaw.
The evil also possessed Ed. Eventually, Annie read passages from pages of the Necronomicon to manifest the evil in physical form, in the form of a gigantic decaying head which tried to eat Ash. Ash stabbed it in the eye with his chainsaw, while Annie read the final passage to open a portal to sent the evil back in time to 1300. Ash was also sucked into the portal.
Once again in spirit form, the evil pursued Ash through the forest as he was trying to get the Necronomicon, and entered the mirror as Ash smashed it. The evil took the form of Ash's reflection, and jumped out of the shards as several Tiny Ashes, which tortured Ash before one jumped down his throat, and the others ran away and disappeared. The Tiny Ash manifested with Ash's dark side, which split from Ash into a physical form of Bad Ash. They fought for a while, and Ash shot, dismembered him and buried him. He presumably survived being buried.
When Ash found the Necronomicon, he tried to say "Klaatu barada nikto", as he was told to do so, but forgot what the word "nikto" was and said it wrong (coughing while saying the word as he vaguely remembered it was an N word like necktie). This awakened several Deadites, which were skeletons, and also reassembled Evil Ash as a Deadite. Evil Ash assumed the role of leadership over the Deadites and invaded the castle to get the Necronomicon. Ash fought Evil Ash during the battle, and eventually set him on fire, reducing him to a skeleton. Evil Ash survived, though, and jumped down onto a catapult that, unbeknownst to him, had a gunpowder bag that was lit earlier by Ash's torch. Ash activated the catapult, catapulting Evil Ash into the air with the bag of gunpowder, which exploded, completely destroying Evil Ash and forcing the remainder of his army to retreat.