"The blood elves, or sin'dorei ("Children of the Blood" in Thalassian), are a race composed of former high elves who renamed themselves in honor of their people that were killed during the siege of Quel'Thalas by the Scourge during the Third War. The blood elves of Azeroth have joined the Horde in the Burning Crusade expansion, seeking to reunite with Prince Kael'thas Sunstrider in Outland. They have since reclaimed their capital of Silvermoon City, situated in Eversong Woods." Source

The Well of Eternity was an immensely powerful source of pure arcane magic. The nobility of the Night Elves built their palaces around the Well of Eternity unlike the commoners who spent most of their time in the forests. Over hundreds perhaps thousands of years, Queen Azshara and her Highborne nobility began to experiment with the powers of the Well. They were soon casting arcane magic and learned more powerful magic but they didn’t stop there. Expanding into other forms of magic, they began using magic for everything. Eventually they got so addicted to the habit of using magic to the point they started experimenting with fel magic after Sargeras contacted Queen Azshara though the Well of Eternity. Eventually corrupted, Queen Azhara and most of the Highborne Night Elves attempted to power a portal using the Well to allow Sargeras and the Burning Legion into Azeroth. They were stopped by a force of Druids, common Night Elves, some uncorrupted Highborne and the Dragonflights. However, the Well exploded separating the continent of Azeroth into 2 halves. The magic of the Dragonflights and Elune was all that saved the World from total annihilation. The Surviving Highborne, corrupted or not, who refused to stop using magic, were exiled to the Eastern Continent. Due to the lost of the Well of Eternity and their exile from the World Tree, they started to age. They came to be known as the High Elves and using a stolen vial of the Well of Eternity before it was destroyed they created the Sunwell.The Sunwell sated their need for arcane magic which had not yet become the terrible addiction that it would in subsequent generations. After many thousands of years of receiving the energies of the Sunwell the High Elves became infused with its power and addicted to it. With the destruction of the Sunwell by Arthas during the Third War, the High Elves now known as the Blood Elves had no source of magic to feed their addiction and no way to acquire it. This ultimately led Kael’Thas to follow Illidan who was one of the Highborne Night Elves who remained on Kalimdor. Before drinking the blood of Mannoroth from the Skull of Gul’dan, Illidan had mastered a way of keeping his magic addiction sated. Kael’Thas learned this method from Illidan and sent representatives back to Silvermoon to teach his people how to acquire arcane magic to ease the pain of their addiction until a new source could be found. It was at this time that the majority of the Blood Elves were able to learn how to mana tap and began rebuilding their lives and homeland (like the Blood Elves in the Bazaar, across from the Bank are learning how to mana tap). Many Blood Elves starting with the nobles and warriors have received this training but some commoners still do not know how to tap (like the ones living in the woods). Unfortunately, some of the Blood Elves upon learning how to mana tap, began draining arcane energy from everything in sight. This overdose of sometimes corrupt or weak arcane magic caused some Blood Elves to mutate into what are now known ad the Wretched. It is not completely understood what kinds of magic and how much overdosing is required for this transformation and it appears to be based on the individual’s tapping. Proximity to strong fel magic in the Outlands has corrupted Kael’Thas and driven him insane. Those Blood Elves still loyal to him in the Outlands have begun to ingest the blood of demons willing or unwilling in order to gain fel powers (fel magic is arcane magic but corrupted). Much like Illidan took on demonic attributes after drinking the blood of Mannoroth (Illidan was a Night Elf), these Felblood Elves have begun to grow horns and taken on demonic attributes of their own. The remaining Blood Elves outside Kael’Thas control are split into 2 groups; those that know Kael’Thas has been corrupted and work against him, and those who remain oblivious to the changed in their Prince. The majority of the Blood Elves still believe Kael’Thas is working for them and only stories brought back from the Outlands and tangible proof will be able to change their minds.

There are 3 ways that blood elves can feed on arcane magic:

1) Simply having a powerful source of arcane magic near them, like the Sunwell was. These sources of magic would fill someone addicted with feelings of happiness and peace, which means that before the destruction of the Sunwell, the Blood Elves were pretty much high all the time.

2) Tapping. Mana tapping is a fancy way of saying how a Blood Elf drains or absorbs magic from another entity, such as a demon, a magical animal or object, or another Blood Elf. The amount and type of magic is based on the strength of the individual and both the strength and type of entity being drained. A mana wyrm does not provide anywhere near as much magic as a powerful demon or dragon. Tapping weak magical entities for long periods of time can lead to wretched mutation. This is the main reason why the Blood Elves imprison demons (to feed on them), and why they have imprisoned the Naruu M’uru within Silvermoon City to allow their citizens access to strong magic.

3) Drinking blood. Drinking the blood of a magical entity is more powerful than proximity or mana tapping. However there is a danger as repeated exposure will cause the drinker to take on aspects of the entity (like the Felblood Elves that from drinking demon blood started to develop demon attributes, or like Illidan who was a Night Elf and now has demon attributes…). Very few Blood Elves within Silvermoon City have tried drinking blood, because they know it works but the majorities of the Blood Elves don’t drink blood out of ignorance. Drinking blood is simply a stronger and longer lasting dose of magic compared to both proximity and mana tapping, but it is equally dangerous.

This is why the destruction of the Sunwell has affected the Blood Elves so harshly, because they were completely addicted from birth and weren’t even aware of it and now they don’t have it anymore. This is the source of their suffering which has led them to do risky and sometimes immoral acts. Arcane addiction is constantly on the mind of every Blood Elf and only the strongest among them are able to fight the addiction for long periods of time. The weak willed elves quickly become Wretched by overdosing to ease the pain or mutate, and those without access to arcane magic at all would be virtually useless much like a drug addict going cold turkey and stay in bed like in a coma.

“A blood elf must spend one hour each morning in meditation, resisting the distractions of their addiction. Blood elves have learned to slake their thirst through the absorption of fel energies. If the blood elf partakes of demon’s blood, the magic addiction abates for a number of days.^” Magical Addiction Source

The magic acquired from drinking blood is not restricted only to Blood Elves. There are Orcs, Troll and even Humans who drink the blood of entities with magic.