There’s a lot of debate flying around, and arguments about what the finale of lost actually meant. I’ll explain my view on what it was all about, because it took me a while to figure it out, on my own.
Now, there is much in the end story, to compare with a garden of Eden, or Caine and Abel story, but that’s not entirely right. There are also a lot of people who are on both sides of the fence regarding when they all may have died. The definite answer is that yes, they all died. Some will say they died in the plane crash, or died in time, after surviving the crash. That’s not entirely right, either, and I’ll explain why.
They all died prior to the crash. Why?
The island is a place/hub for lost souls, in a world of purgatory. Not one, but a limitless number of them, spanning different times in a soul’s life. No naming of a creator of this purgatory has been mentioned. Considering the artifacts and lost religious structures (Egyptian, Mayan etc.), built by the many lost souls visiting the island, it could date as being there since the beginning of souls. Near the last episode, even the woman who brings Jacob and his brother onto the island, hints that there are other people on the island (the people Jacob’s brother eventually joins with). Even then, she states there’s no leaving, and that even if jacob’s brother tried, he wouldn’t be able to leave with them.
I know what you’re thinking; why then were they able to leave the island in that horrible season that confused all of us? They didn’t. They just slipped into a different purgatory they created, that was just as broken as they all were, without hope/redemption. This left some of the lost souls still on the island. It explains why it never felt right to them that they were there. It may have been jack’s own purgatory that the group followed into. They were able to leave that broken, unhappy purgatory, to return back to the stability of them all being together, on the island. They even brought back Locke, so that he wasn’t stuck there, even if he was “dead”. That’s why they ALL had to come back from that place, because they were a group that crossed over into it, and they needed to be a group to cross back.
The purgatory is one last place for redemption/forgiveness. Jacob mentioned that he pulled every single one of the core group to the island, because they were all lost and broken. He also pulled many other spirits there (the others). He manipulated them into being brought into the island’s purgatory, for possible redemption, and because he knew that they could protect the island, and all souls from jacob’s “brother”, who was no longer a human spirit. Around the time evil took over, jacob’s brother’s spirit had become like Walt’s (truly beyond hope), but because he was thrown into the cave not redeemed, it allowed his guise to be used by evil, much like evil took on the form of Locke. That is why Jacob said goodbye to his brother’s dead body, when it was found outside of the cave. His actual brother had already died and gone. They admitted that the evil that took locke’s form could only do so, because he was already dead.
So, in this purgatory now roams evil, attempting to escape from the confinement of this ‘island’. Call him what you will, but he is the yang to that last light of the world’s yin. Jacob explained, in one episode, that he is the cork to keeping evil from escaping this ‘place’, using an upside down wine bottle as an example. Escaping to where is up to you. Heaven? Other parts of the purgatory?
Who were the Dharma initiative? They were more souls brought by jacob, or the evil, or possibly just finding their way into this purgatory from another, as they were a large group, that continually brought in more souls from their own possible purgatory. This would explain why Alpert was able to cross back and recruit, for Jacob, from what we think is the real world, but could just be another purgatory, since there isn’t a way to leave the island, except to move on, or become trapped by giving up hope. The island may also be the hub of purgatories, leading to all others, which is why it’s important that the evil not escape it, as it could corrupt all souls. Jacob’s watchtower showed, what I believe to be many other purgatories/times, that he was able to hop into, and influence. This is why he was able to weave a pattern that eventually led to the choices the principle group’s souls made in being all on that plane, together.
What was with the whole time jumping of the island? Different soul’s times, and other purgatories. There is no ‘time’, but there were different souls from different times, and the group was split up and traveling through different versions of the island, which caused some of the non-group, like Charlotte, to become separated from the main ‘group’, and phase out. There being no actual time, also explains why Desmond was able to travel to other periods of the souls in purgatory, to influence Faraday etc., and why he had to find a ‘constant’ to stabilize himself from flopping between all of the different planes of purgatory.
Think about it–in the alt life that they were in, they weren’t experiencing a life without the plane crash–they experienced an entire life, from the beginning, as if the island did not exist. That means that at least in one confirmed purgatory, they lived an entire life, even multiple generations (Faraday’s parents), that were unaffected by the island. Faraday was now a musician, which was a life choice at a very young age. Who’s to say they hadn’t done this prior to the original crash?
What happened to all of those that didn’t show up, at the end, to move on? They moved on on their own, if they could, or they stayed in their own purgatory/created afterlife. Those from the main group, that found hope, that sacrificed for each other, and loved one another stayed as a group. Desmond hints to this, when Daniel Faraday’s mother asks if Desmond would be taking her son with him, and he smiles and says, “Not with me.” He was not part of the group that promised to leave together. Not everyone from the show will move on together, but may have their own groups/times to find redemption. Benjamin hints at this, when he states that he is going to stay a while, because he wasn’t done.
Christian Shepherd stating that everything was ‘real’, was not an admonition that they were not in a purgatory, on the island, just that what they experienced there was real, and that it wasn’t imagined, just like them being together in their ‘alt’ existence was real. He also stated that there is no time–there never had been any time in the first place, which is why the island was not stationary, but for the groups of souls inhabiting it.
The significance of the artifact blocking what appeared to be the destruction of the island, may have been a symbol of keeping the spirit world from the world of the living, or the damned. By Desmond removing the stone, it caused evil to solidify, and it (form of Locke) was now able to leave, like the rest of them, to either other purgatories, or possibly into the light itself, causing what they feared; an end to everything. The cork was removed from the wine bottle! The last hope is restored through sacrifice, by jack, when he replaces the stone to keep evil from destroying the last place lost souls can find redemption/hope. Why wasn’t he turned into a smoke monster, too? Because he had found his redemption through sacrifice. He was willing to give up his life for all of them, and the island itself, and was able to be removed from the cave, without being an embodiment of evil.
So, all of the group tied together were able to move on, after fixing their souls, and finding redemption. Some may have stayed on the island, or in other purgatories for a bit longer, as Hugo and Benjamin hinted that they had been guarding the island for a bit more, most likely replacing the position with someone new/worthy to guard the afterlife from evil.
So, that is my theory. Keep in mind that there are some things that may not have an exact explanation–this is just a framework. It was a decently good story. It was a little confusing at the end, only because it was stretched out for six years, and a writer’s strike 
