Spoilers (of course). The bigger ones blocked out:
The entire book takes place inside of a massively multiplayer online game, which while not explicitly noted until late in the book, is strongly foreshadowed by the book's title and premise.
The organ in the brain you noted was an indication of a player account controlling an in-game entity, or the Syndrome. So, by reviving pre-Infusion dead, Dreadgrave is bringing back characters from the lore before player characters began appearing in world. These could be characters from during the development of Mogworld, or ones that never really existed. Here it isn't quite explicitly stated, but the power of the Infusion (one that allows Jim to see the "lines of code" later on in the plot) is something that can change the game world, usually by adding players. Here, instead, an NPC is using it to create more NPCs procedurally, which makes sense, considering Mogworld was meant to be the first completely procedurally generated video game to begin with.