After the eruption of Red Mountain, many Dunmer fled to Skyrim. Several wanted to strengthen their magical talents stayed at the College of Winterhold in Winterhold. Many more fled to Windhelm, the capital city of the Stormcloaks.
Before the destruction that led to the mass exodus of Dunmer, several of the faithful of Azura received visions of the eruption of Red Mountain. Setting out for Winterhold, these Dunmer built the Shrine of Azura and remained there as priests and priestesses. They left over time, until only one remained, Aranea.
Very nationalistic, the Nords of Windhelm segregated the Dunmer from the other citizens into different living areas, which is now known as the Gray Quarter. They were not treated as bad as the Argonians, who weren’t allowed to live inside Windhelm.
Garen Marethi, a Dunmer Mage