A maze of damp, dark corridors, where rats and slimes lurk behind every corner. According to the Sewer Chamber Key, people were banished once they turned Undead:
In any community, a few bad apples are sure to exhibit insatiable greed. If they were turned Undead, and banished to the Depths, would they reconsider their ways?
Functionally, the Depths is the sewer of the Undead Burg. It was built to house the run-off from the Undead Burg, both literally and figuratively. The labyrinthine sewer tunnels of the Depths are home to humanity-gnawing rats, poisonous slime, and frog-like basilisks that threaten to petrify those who cross them. There are Undead who dwell in this place; a group of cannibalistic butchers and their dogs, possibly feeding the Giant Rat It could be assumed that they were found to be too undesirable to live among the thieves of the lower Undead Burg, and made the Depths their new home. At the very bottom of the Depths dwells the Gaping Dragon.
According to the Key to the Depths, those banished from the Undead Burg eke out their existence in the Depths, a damp lair with no trace of sunlight. Nearly half of the Depths form a perilous flooded labyrinth.
It is also worth noting that the aquaeducts from The Depths drain their water into Blighttown. According to the Blighttown Key, even those banished to The Dephts were wary about Blighttown:
As its name suggests, Blighttown is a place of great pestilence. Even the polluted inhabitants of the Depths are aware of its dangers, and built this mighty door in hopes that they could remain safely separated.