The Island is..... by Steve

First of all I have to say the Island was a PHYSICALLY REAL place that existed in the physical realm we call planet earth, However the light at the centre of the Island(The Source) is the umbilical between the physical and the metaphysical.

The Source is the point where life originated, This energy is what gives us life, Without this energy life would cease to exist and the dead would no longer have the ability to "move on", They would have no place to go other than "Hell", Just as the Glyphs on the timer hinted at during a system failure, and Hurley in "Ab Aeterno" stated to Richard "If we don't stop the man in black. todos nos vamos al infierno(We all go to hell).

The concept of "moving on" was intentionally left up to our own interpretation depending on personal beliefs. I believe the writers intention was that these people(Or at least their souls) have existed before within another human body.

Characters often discussed the concept of reincarnation, The transfer of the soul into a new body after death. One of Locke's foster mothers believed his sister reincarnated as their dog. Sawyer seemed to fear Frank Duckett had returned as a boar. Kate also once spoke to Sawyer as though he were Wayne reincarnated.
The word's "Canton Ranier" on Ben's van formed an anagram of "reincarnation". The van contained Locke's body, which the Man in Black would later use as a form. Several characters, most often Desmond, referred to seeing one another in another life, Nadia wrote on the photograph Sayid kept ""You'll find me in the next life, if not in this one", And the test Richard asked young Locke to perform. The test given to young Locke by Richard Alpert resembled the Tibetan Buddhist ritual used to confirm a reincarnated Tulku (the Dalai Lama being the most widely known).

Its possible that the characters, were reincarnated versions of past Island inhabitants, Perhaps they were reincarnated several times until they finally achieved their purpose and gained true enlightenment.

After their lives, then their flash-sideways experiences they once again became energy merged with the source, but perhaps this time, other than being reborn, they gained ever lasting peace, They were no longer LOST.