As far as i can tell when you die you lose something ( like a life ) you have so many lives but you can sacrifice items to also come back. once all these lives run out you die for good.
here is stuff from the wiki:
DeathEdit
Chant. Murmur. Pray. Invoke.
Sometime in your adventure, you'll see these four words come up - when you're attempting to revive yourself. Death is a common occurence in Wizardry Online, and is the first ghastly step towards permanent death. However, it is avoidable if you know what to do.
What happens when you die?
When you're dead, your soul wanders the spirit world, where you are stuck in a hazy blue world away from all living things. In this phase, you can run infinitely, and fall from any height without taking damage. Your objective: to locate a statue. Statues can be found around dungeons, and serve as checkpoints for the dead. Do note, you can only access the statue that you have lit prior. Your goal then is to run to the statue, and essentially roll for revival.
But then you notice you have blue flames over your head.
When you die, 10 blue flames mark your soul's health in the spirit world. There are walkers roaming around the spirit world, basically reapers, who can hack one of the flames off of you if you're caught. Each flame represents 10% success rate for revival. You want to avoid walkers at all costs. And if you're caught by a walker, your soul is sent back to where your body last was.
If running is too risky for you, there is an alternative: instantly warp to a statue. To perform this, players need to stand over their corpses, in which a button allowing them to teleport comes up. Teleporting has its risks as well: firstly, all your gear suffers a 25% loss in durability when you do it; secondly, there is a 30 second wait time before you can access the statue - prime time for a PKer to loot your body.?
The Statue
So you're finally at the statue screen, despite difficulties. When you select it, a scale will come up, showing your chance of survival. You have 2 shots at revival: first time you fail, you're turned into ash; second time you fail, well, it's all over there.?
Your probability can be raised, however, by offering items and/or gold to the statue. Up to 5 items can be offered, and depending on what you offer, the amount on the scale will go up.
If you have any good friends nearby, they can pick up your body or ashes, and take you to a statue or temple for revival - avoiding some of the risks on the way.