Lyorn Records

When a Dragaeran (or Easterner) dies, their soul waits three days before leaving the body.

At this point, according to the Book of the Seven Wizards, the soul is called to the Plane of Waiting Souls (this assumes that the soul is not destroyed by a Morganti weapon).

When a new baby is about to be born into the living world, it exerts a pull on the soul most suited to it, and that soul is reborn into Dragaera.

Easterners and Dragaerans apparently have their own segregated waiting areas for souls, but occasionally a Dragaeran can be reborn as an Easterner.

This may be due to the fact that there are so many more births among Easterners than among Dragaerans. This is also why it is more likely for an Easterner's soul to end up as a ghost--there are fewer waiting souls to attract the recently deceased to the waiting area.