Azeroth has been the home of civilised cultures for at least 12,000 years. At that time, the Night Elves had a thriving if decadent civilisation centred around the Well of Eternity. This magical lake changed the primitive humanoids into the forms we know today and also bestowed immortality. There is some debate that the elves are descended from trolls, who had several powerful empires established even before the rise of the elves.
Over time, the noble classes of the Night Elves studied the energies of the well. One group, favourites of the queen Azshara, became known as the Highborne. Their dabbling in arcane magic eventually attracted the attentions of the great titan Sargeras. The arrogant Highborne were easily corrupted and used the Well to open a portal for the burning legion to invade.
The war of the Ancients was triggered. The non-highborne Night Elves were eventually victorious under the leadership of Tyrande Whisperwind, Malfurion Stormrage, and Illidan Stormrage. Some few of the Highborne regretted assiting the Burning Legion and escaped Azshara's capital before its destruction along with the Well of Eternity. These were later exiled by the Night Elves for continuing to practice arcane magics.
A number of Highborne still loyal to the burning legion survived the destruction of the Well of Eternity and were trapped in the sunken ruins of Azshara's capital. Cursed creatures, these Highborne that survived became the Naga and were lead by Lady Vashj, Azshara's former handmaiden.
The exiled Highborne moved to the new continent of Lordaeron and established the kingdom of Quel'Thalas. They called themselves High Elves and continued practicing arcane magics.
Some very few Highborne survived the war of the ancients and were not part of any other group. Some of these have survived through to the present.
After the destruction of Quel'Thalas by the scrouge only a few years ago, the surviving high elves renamed themselves Blood Elves and joined with the horde.
The Elven family tree looks something like this:
High Elves Naga
Mostly from articles on World of Warcraft encyclopedia