Modern Elanthian scholars define a demon as a malevolent entity from or linked to a plane other than the Plane of Abiding. In the past, many other types of entities have been referred to as "demons," such as creatures of the Plane of Probability, but this is not strictly accurate. The term "demon" essentially refers to all life from the Plane of Exile, which ranges from a literal demon-god like the Hunger to things that you hunt for profit as solo adventurers.
Demons are by and large horrifying and malevolent creatures whose very presence on the Plane of Abiding is destructive and corrupting. Beyond any problems that they may cause directly, the major danger of demonic creatures is in the link to their home plane; when a portal opens between two planes, the areas around them begin to take on many of the characteristics of that other plane. Should enough power be used, or the portal stay open for too long, the planes begin to merge together and alter the realities and physical laws of both planes, which can be devastating and deadly to inhabitants in both.
It has been strongly hinted that the source of a Necromancer's power is ultimately and inevitably demonic, especially once they delve into the spiritual.