It's a temple. Just like the water temple is devoted to water, fire temple to fire and lava, the shadow temple is devoted to death. All of the elements there are medallions for, are necessary for our world to exist. That's why each one has a temple devoted to it.

Also, the darker side of the Hyrule Kingdom is portrayed there, it may have been used as a wartime prison (along with the well). The skulls along the wall give you rather vague messages but that's one way you can piece it together.

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Belief or disbelief rests with you. To die without leaving a corpse... that is the way of us Garo
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