When the Guardians of the Universe first sought to establish order in the universe, they decided the stars were to feel only the power of technology. The Guardians travelled througout the universe gathering stray bits of chaotic magic in a massive cleanup effort to eliminate all magic from the universe. This assembled magic was then stored inside of a star in space. Over time the magic gained a sentience, becoming a living Green Flame, the Starheart, and it sought to escape it's prison. Eventually, it freed itself and merged with a passing comet. The comet, after several hundred years, crashed to Earth in Ancient China, fusing itself with the spirit and power ring of an ancient Green Lantern named Yalan Gur, whose normal weakness to yellow had been replaced with a weakness to wood; this also matched with the Green Flame's inability to affect "living, growing things of the Green".
The meteor was found by an ancient Chinese artist who carved it into a lamp which soon came to life surrounded by flame. The mystical lantern gave forth a prophecy declaring death to its first owner in anger, a prophecy of life for its second owner in penance, and a final prophecy of power to its third in fury. The man who carved the lamp, Chang, was assaulted by frightened peasants who believed him to be a sorcerer. The Flame, in the shape of an ancient oil lantern, enacted the prophecy and killed the mob. It made its way, eventually, to Xanadu, where it was presented to Marco Polo as a gift and a brief touch was all the immortal sorceress Madame Xanadu needed to restore her latent Fae powers, which had been negated centuries earlier by Merlin.
Hundreds of years later, the lamp was given to an inmate in Arkham Asylum named Billings. Billings reforged the Chinese metal into a modern, if sylished, railroad lantern. The second prophecy of the lamp came into effect and restored Billings' sanity, allowing him to leave Arkham. Later, he lost the lantern. It was eventually discovered by injured Army engineer Alan Scott. The lantern promised him the power to make those responsible for his injuries pay, and using a fragment of the lantern, Alan fashioned a ring of power. Now wielding the power of the lantern, Alan Scott became the Green Lantern.
However, the malevolent energy of the Starheart was not satisfied, and eventually used the corruption wrought in Scott's son, Obsidian, to make its escape attempt. The sentience of the Starheart was defeated and destroyed, and Alan Scott became a literal living incarnation of the Starheart, with his physical body a mere manifestation of his will over the Starheart. Eventually, it transpired that Scott's daughter, Jade, also possessed a fraction of the Starheart's powers naturally, without accesing the lantern or wielding a ring, due to genetic contamination of Scott's DNA by continuous recharges.