(Okay, I really like lore discussions and I'm about to post a massive text dump. Bear in mind that this is all a work in progress, has plenty of spoilers, I'm constantly updating it all with new information over time, and this isn't even half of it all. Don't let that discourage you, and feel free to nitpick this post to death/springboard off it into uncharted territories.)
You think that's bad, get a load of this:
Soul of the Knights of Loyce.
The Knights of Loyce were taken by Chaos,
and lost all sense of purpose and being.
The few woeful souls that trudged back home
were guided by some faint vestige of self.
This soul is pure sorrow,
and only Alsanna can put it to rest."
"Charred Loyce Armor
Charred armor of the Knights of Loyce,
burned black by flame.
These Knights of Loyce plunged into the old Chaos
with their lord, and lost their sense of self.
To this day, they still burn in agony,
alongside their once-proud king."
From this, we know that the souls taken by the Chaos are all but wiped clean. They have no identity and no sense of purpose. If you're looking for a catalyst behind why history keeps getting forgotten and repeating, that'd make for a pretty good guess. Demons burn the world, everyone forgets everything, something happens, cycle starts over. Leaves a lot of questions, but it's a good starting place.
Other fun cycle hints, in no particular order:
Bonfires are made of accumulated undead bones and burn with a special fire that will not ignite anything else.
(Torch description from Dark Souls 2)
"A torch made by soaking the end of a long
stick in pine resin.
Light the torch on the fire of a sconce
to illuminate areas for a short time.
Find new torches to extend this period.
Torches can even be lit on bonfires,
the flames of which do not normally
set objects alight, due to the coating
of the bones used to fuel them."
(Homeward Bone description from Dark Souls 2)
"A white-ashen bone.
Return to last bonfire rested at.
Bonfires burn on the bones of Undead
And this bone, belonging to one whose
journey was cut short, has the power
to travel to bonfires. As if it yearns to
resume its futile quest…"
Gives an interesting reason as to why undead are supposedly weak to fire. Now, gameplay-wise this doesn't make a whole lot of sense because the torch can be used to light things that are definitely not made from undead bones, like the tar oil outside the Lost Sinner's room and the oil flasks the varangian pirates chuck at you, because story-wise the coating of undead bone powder on a torch is what allows it to transfer whatever that fire is onto itself, which then wouldn't be able to burn anything that isn't undead bones, but...
Which itself raises an interesting point. Nito from Dark Souls 1 is basically a giant walking pile of undead bones, and the Rotten from Dark Souls 2 is a giant mobile pile of undead bodies. Ten bucks says that under the right conditions, those guys could turn into a gigantic bonfire. A giant bonfire like, say... the first flame. Which kind of has to be a bonfire and not just any old fire, since Gwyndolin was able to keep it burning by throwing undead at it.
Speaking of Nito/Rotten/dead stuff, in Dark Souls 2 both The Rotten and whoever the Old Dead One is who Agdayne and the Milfanito are loyal to are very heavily connected to Dark. The Rotten casts it everywhere, and the Undead Crypt is suffused with the stuff:
"Sacred Chime Hammer
Great hammer of the Royal Aegis.
The power of this hammer's blessing has
not faded completely, despite its being
exposed to the dark of the Undead Crypt.
Unleash its latent power with a strong attack.
Sir Velstadt, known as the Royal Aegis,
gave himself to the King in both life and death.
Effect: special attack (strong attack)"
Yeah, that's not normal dark. That's, like, Dark dark. Humanity dark. Which raises another question: By all accounts (in dark souls 1), Gwyn's crew and the Izalith sisters do not age. Quelana has been wearing that same robe since before the age of fire according to its description, and we saw Gwyn in the opening cinematic and he didn't die until he set off to re-light the first flame. Humans, apparently, are the only humanoid race in the game that are not immortal/ageless. And maybe giants I guess, if their tomb is anything to go by. Which makes me think Nito is made specifically from human bones, because he sure as heck doesn't have any sway over Gwyn's kind and the witches of Izalith.
So we've got Nito collecting/being made of bones and The Rotten (Nito 2?) collecting/being made of undead, and maybe collecting humanity too if we want to stretch a few stray threads a bit (would explain Nito's spectral cloak and The Rotten's spells, at least). After them, we've got Chaos demons in DaS1 eating humanity and doing who knows what with it, and the Flame of Chaos in DaS2 wiping human souls clean like a magnet over a hard drive while still supposedly producing demons. The furtive pygmy/Manus(?) apparently wants to spread enough Dark around to blot out the sun and create a giant abyss, and by all appearances Gwyn and whoever has Gwyn's soul is more interested in building a giant, everlasting kingdom in some inaccessible region and lording over it.
Sounds more to me like a giant tug-of-war with built-in balances than it does a smooth and constant cycle:
1) Gwyn's soul is always the first, and builds a giant kingdom for some reason. His kingdom then either comes under attack by demons (via Izalith), or gets eaten apart from within by the sudden emergence of Dark (due to the first flame running out). To fend off the demons, he has to go to war with them, and historically that hasn't gone well. To fend off the Dark, he has to re-light the first flame somehow. Either way, there isn't much of a kingdom left afterwards.
2) The Dark/The Abyss wants to blanket the world in darkness and/or humanity, to the detriment of pretty much everything except itself. Nobody has any idea what will come of this, but Vendrick says "humans will take their true shape" if this were to ever occur, Gwyn was freaked out enough by it that he'd rather die to stop it, and the events of the AotA DLC involved an awful lot of pumpkin-headed, long-limbed, freaky people. Needless to say, it's probably nothing good. But Alsanna (the aspect of Manus's fear) is, apparently, absolutely terrified of demons. Which makes sense, considering how they apparently eat humanity if DaS1 is anything to go by and wipe out your identity if DaS2 is anything to go by.
3) Nito, the First of the Dead. One of two major entities that have next to no lore on them. In DaS1 he is very actively causing death with his Eyes of Death from within his catacombs (where the dead are put after they've died, go figure), and in DaS2 he doesn't have a covenant or even technically a presence, but there is a giant freaking crypt that is supposedly overseen by a "One who gave us the first death" or something like that. Anyways, the Undead Crypt is still where all the dead bodies go, and also where the undead go apparently. I'm getting the impression Nito/whoever has Nito's soul tries to gather human/undead bones to make a giant freaking bonfire out of once everything's all said and done. Or maybe he just likes collecting bones, and the bonfire part would be a happy accident.
4) Izalith/Chaos Demons, the second of two major entities with next to no lore explaining what in the blazes they're up to. In DaS1, we know Chaos Demons eat humanity because feeding some to the Fair Lady of the Chaos Servants covenant makes her feel better, and apparently Queelag was collecting humanity for her sake. Not to mention weapons ascended with Chaos are powered by the wielder's humanity, and the chaos flame ember refers to them as "demon weapons". In DaS2, an extra tidbit is added on: souls claimed by the Chaos have their identity and goals purged. This is, as far as I can guess, a giant global reset button made of fire. But it's worth noting that Alsanna and the Ivory King had the Flame of Chaos locked down hard in Dark Souls 2, so they didn't have much of a presence and couldn't really do anything at all.
5) So as far as I can tell, the "cycle" goes like so: the first flame lights up and whoever inherited Gwyn's soul makes a giant kingdom. Time passes, the first flame starts to fade, and humanity goes wild and the Abyss starts doing crazy **** and knocking on the kingdom's back door. Suddenly demons, which I guess start attacking and eating people while waging war on what's left of Gwyn's kingdom. All the while, Nito is collecting skeletons as the body count rises so that when the dust settles, there's enough raw material in place to fuel the next age of fire.
One of these days, I'm really gonna have to compile all this nonsense into a single, easy-to-understand mini-essay. I have all the data, but I never bothered to straighten it out.