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The Shadow Shard is actually four separate zones, Firebase Zulu, The Cascade Archipelago, The Chantry, and the Storm Palace. Their location is a pocket dimension with a quite different concept of gravity. The Shard was created by some kind of demi-god known as Rularuu. While he is not in City of Heroes currently, there are three others who are either aspects of him, or creations in his image to serve him: Ruladak the Strong, Faathim the Kind, and Lanaruu the Mad.
At some point in time there was a war between these three brothers in which Ruladak was imprisoned and Lanaruu went crazy. Faathim and Lanaruu have themselves become imprisoned within their own fortresses, the Chantry and the Storm Palace; while these bases are apparently invincible they cannot leave without facing the other, and the Soldiers of Rularuu, who still serve Ruladak.
During this war the Shard was broken into the floating islands it is today. Also, at some point many citizens of Paragon City became trapped here, where they've somehow survived for several generations. They've mostly grown to live off the Kora Fruit, which can provide heroes with brief bursts of energy.
In addition to the omnipresent Soldiers of Rularuu, you can find Nemesis Army soldiers, Crey operatives and Circle of Thorns mystics there searching for power, and the curious Shard Reflections. In the Storm Palace, there are also Lanaruu-fueled energy storms that can be highly dangerous.
A note should also be made on transportation in the Shadow Shard. Those who cannot fly or teleport from one island to another must use the gravity geysers to be launched across the void. Be careful to turn off all travel powers, including sprint, or the geyser may mis-shoot you. If you fall, you will be teleported back to Firebase Zulu - which may be quite a headache if you're deep into the Shard. The zones are connected by large energy 'vines', and there are portals set up between 'Mole Points' in Firebase Zulu and the Cascade Archipelago that heroes can gain access to.