Santorini, or Thera island has a long illustrious history. It's strategic location in the southern center of the Aegean sea made it the cultured hub of prehistoric Greece. The island was most active during the Bronze Age, and remained relevant all the way into Hellenistic and Roma era.
Read about the history of Greece, and use this more extensive timeline of Greek history to orient yourself and to get a better appreciation of the depth of time and human achievements related to the island.
But one of the most spectacular events that marked the island was beyond human control. Santorini island is the top of one of the most destructive volcanoes in human history, and it's shape today was formed in the 17th century BCE when a colossal volcanic explosion blew much of the island in the air. What we see today is the result of that explosion and the subsequent build-up of ash, lava, and other material that percolated from the earth's depths.
All the spectacular villages you see clinging precariously at the edge of the cliff are built at the rim of the volcano's mouth. The sea you see below is the sea that filled the enormous crater after the volcano subsided it's activity. Thera volcano is still active and the most visible manifestation is the tiny island in the center of the volcano that is slowly growing through the constant volcanic activity.