Time Lord society, and indeed possibly Time Lords themselves, were formed through the combined efforts of the Time Lord Founders.
There is a difference between the inhabitants of Gallifrey (the Gallifreyans) and the Time Lords. In order to become a Time Lord, you must be chosen at the age of eight to be enrolled into 'Time Lord Academy'. It is here that a novice will look into the Untempered Schism and see the whole of time and space, as well as taking regular subjects and examinations until graduation.
The Dark Times
The Time of Empire
The Gallifreyans were an ancient species, having evolved well before the Dark Times. And being one of the first humanoid species to evolve. One Time Lord stated that they had perfected the transmat beam when the Universe was less than half its present size. Even before the Sol system (Earths own solar system) formed, the Gallifreyans were able to lead an interstellar war against the Racnoss Empire.
This early empire was massive, with colonies across the galaxy. Slave trading was a common practice, even though there was protesting against it. And Gallifrey was governed by mystery and superstition, through the Cult of Pythia.
Pythia ruled as part of a matriarchy, who had powerful psychic powers that enabled them to see the future.
The Time of Chaos
The Time of Chaos was when the power of the Pythia started to weaken and the Neo-Technologists, led by Rassilon, started to take power. The last of the Pythia began to lose her power of prediction and, in an attempt to see further she recruited Vael (a skilled Gallifreyan with psy-powers) to work with her and then spy on Rassilon. But when her idea of her future failed to come, she sent her followers to Karn, and then cursed Gallifrey with sterility and threw herself into an abyss below her temple.
After the collapse of the power of the Pythia, there were threats of war and chaos throughout the empire. Another Ice Age began and the slave colonies of Gallifrey started to demand their freedom.
The Age of Rassilon
For information on the Time Lord founders, see here
In order to deal with the problems facing the empire, Rassilon instituted several changes. He instituted the creation of genetic looms to enable the Gallifreyan race to reproduce.
Following these early changes, the Time Lords began research into black holes, the first race to do so. Later, Omega utilised two manipulators, the so-called hands of Omega, in order to create a black hole from which the Time Lords drew the power for time travel.
During these early times, the Time Lords would abuse their power and use items, such as the Time Scoop, to abduct other beings from throughout history. Once these beings has been taken, they were made to fight each other for the Time Lords amusement in The Death Zone.
Following the Time Lord/Vampire War, the Time Lords had abandoned the use of violence, but continued to involve themselves in the affairs of the wider universe. However, this had catastrophic results for other life forms.
The people of the planet Minyos were gifted with high technology by the Time Lords, but as a result of this, nuclear war broke out and the Minyans were nearly made extinct. In a similar even, due to meddling on Kilst, Evolution was reversed for the inhabitants, while on Plastrodus 14 the inhabitants were all driven mad.
Horrified by the results of their meddling, the Time Lords adopted a strict policy whereby they would only observe the events of the wider universe, and never become involved personally.
However, the Time Lords themselves also broke the policy. The top secret Celestial Intervention Agency (CIA) was formed in order to break the policy for the interests and well being of Gallifrey.
Other than the CIA, there were the occasional times when the Time Lords chose to become involved with evens outside of Gallifrey. The Millennium War saw Rassilon fighting against the Mad Mind of Bophemeral, Braxiatel organised the Armageddon Convention, which led to the banning of many weapons of mass destruction.
Era of decadence
Centuries of isolation for Gallifrey meant that they had developed to their full potential, and their technology and power had reached a stagnate, even as other races became more powerful and dangerous.
Only the renegade Time Lords, formally the Deca, such as the Doctor and the Master were able to experience the further development of technology that Gallifrey were isolated against.
The Time Lords were easily rendered helpless while Omega began to drain energy from Gallifrey, and were only saved by the intervention of the Doctor. The ease with which the Master was able to alter records contained within the Archives and manipulate the Matrix was due largely to the fact that Gallifrey's technology had been surpassed on other worlds.
These revelations caused a revolution to occur on Gallifrey.
Destruction of Gallifrey
Gallifrey was actually destroyed twice, both times by the Doctor. The first time this happened was when the Time Lords went to war with a group known only as The Enemy. The war was temporal by nature and cracks throughout the time appeared which affected the past. The war with the Enemy raged for an undefinable amount of time, but at a point the temporal events stretched to a point where upon they effected a critical point, allowing the Doctor to openly attack, destroying Gallifrey.
At some timeless point after this, Gallifrey was restored. However, the Time Lords finally met their end in the Last Great Time War, against the Daleks. (See The Time War)