The show goes to great lengths to set up a 'red herring' of the concept of the island being hell. However the island is clearly understood by the end of the series to be on Earth, and not hell. The island serves as a "cork" of sorts. This cork was stated by Jacob to be what seperates evil from being able to consume the world. That stated, the events of the castaways of Oceanic 815 experienced on the island were real and not a result of their deaths. In fact many of the characters died on the island. Some of the deceased still remain trapped on the island but this seems to apply only to those who have died on the island. The reasons they become trapped and whisper in the jungle is not clear. There has been a few noted appearances of people who died off the island visiting people there(Isabella, Ricardis's wife who appeared to Hurley in the last season, is one example) but those people are not trapped on the island.