I know too much about my world. I can no longer figure out what is relevant and what is not. Leslie of Layne is only a minor character who makes a brief appearance, do we need to know that his country rebelled a thousand years ago and that the rulers of Layne are still bound to the rulers of Yen, even though they've forgotten that Yen even existed? And yet, this information affects how Leslie relates to Janin. I even know how the issue is resolved, when Janin pays the king a visit after the death of his only son and releases him from the binding. But do the readers need to know this passing incident?

On the other hand, it's crucial to the story that everyone knows it was Widar who cursed Zirg, after loosing the love of a maiden to King Lemuel, and that King Meline swore to free the city of his friend, and that Janin, his grandson fulfills that oath. But how on earth do I work that in without giving my readers information overload?

And this is just local history! We're not even getting into who on earth Tell is, and why everyone is so obsessed with him. That's a whole other book. But is everyone going to spend the whole time wondering why Janin doesn't explain to his guest? Is it permissible to simply say the tale would take too long in the telling and let it go at that?

What about the ancient curse that almost kept Janin's tutor from coming out of the mountains to teach him? Or the fact that his aunt is better with a sword than his father and that it's her sword that Herene carries?

How can I tell what's important and what's not? How much is too much? On one hand, a lot of it is directly relevant to the story, but on the other hand, if I know it, you want to know it too, right? It all ties together, like puzzle pieces, except that some pieces are smaller than others, and more insignificant.
While I'm at it, how many random unnamed characters can I have appear and disappear without explaining who they are? Will it really bug you if a dragon-keeper gives you a warning and then disappears? Will you want to know his name, where he's from and why on earth he's a keeper of dragons? Or will you be willing to accept his warning and let him leave at the end of the chapter never to be seen before?

I'm finally writing again, and this is the mess that results...

It is important for the depth of your world that you as the writer know everything, but the reader only needs to know a portion of that. Look at the Lord of the Rings, there are innumerable books and writings about middle earth that never even get mentioned in the main text, but they exist. The main thing is to show what is pertinent to the immediate story and leave the rest as history or another book altogether. As far as random people, it could be interesting to give them a background and have them pop back in at a later point, but it is completely acceptable for them to just be walk-ons.

I agree with Armorbearer. As a writer you should know every in and out of your world and story, just like God knows everything about His creation. Obviously, you won't think of everything, but you should get as close to it as possible.
Of, course the reader does not need to know everything, only what is needed to understand the story.

My advice: make all the extra material into another book. I'm having to do that with mine. What started out as four books is developing into plans for almost thirty. Ask yourself this: what part does the reader need to know? What is crucial to their understanding of how it all works? I have discovered that the best way to give out that type of information is by having your characters tell each other about it. Bring in a character who doesn't know about that information, and have another character tell him about it, giving him a really short summary. I'll paste an example of what I did to get that information in one of my stories:

“There’s much in this life that is hard, Richard,” the older man reproved. “You can’t run away from it all!” Richard rolled his eyes in disagreement as he sat down next to his instructor on a bench hung on the wall. “I have to tell you,” Spartos began, “How much I have enjoyed working with you boys. Even with as much of a trial as you’ve sometimes been,” he gave Richard a look, “I find that I have really missed that sort of fellowship.”

The pupil stopped short in adjusting his sleeves. “I never knew you were a family man, Spartos!” He cocked his head to the side in bewilderment.

Spartos’s muscles relaxed, his eyes taking on that glazed-over, distant look, the only thing that could ever travel back through time. “I was once.”

“That must have been very long ago, then,” Richard commented.

“No, there is still one who lives, that I know of,” Spartos said. Richard leaned against the wall, sensing a story coming. “I was the Premier, or leader, of what were called the Black Guards––”

Richard broke in, “The military officers who were trained even as we are?”

Spartos smiled wanly. “Yes, they were trained in the art of the Cryston. They were very adept at it, also. An adeptness which I feel shall never again be had in such knowledge. Anyways, it was a group designed for training in defense of oneself against the evil which was steadily becoming rampant throughout the galaxy at the time. What I and my friends didn’t know was how far such evil had been instilled in our numbers.

“When some of our number began persecuting the Giants, I, being the leader, spoke out against such actions, as the Giants had been our ancestor’s greatest supporters and had helped to establish them in the galaxy. Nearly the entire body rose up, denounced me and seven faithful comrades as Environmentalist Rebels, and outlawed us. My nephew, upon my being deposed, was placed in the leadership.

“My friends were found and destroyed one by one, but somehow I evaded capture. Among my supporters was my brother, the father of the new Premier. Enough was his sympathy for my cause that he was regarded as a threat to his son’s authority. The father mysteriously disappeared soon after sheltering me on one occasion, and it was rumored that the deed was ordered by the Premier.

“My nephew had sworn to find and destroy me, as he was not content until all who dared to oppose his power were gone. He eventually caught up with me in my travels, and we had a confrontation. He had the same weakness as you. With the identical stroke, I believe. I couldn’t bring myself to kill him, and merely bereft him of his right hand. You know the rest of the story, and by now, should be able to guess who the man is.”

Richard stared, dumbfounded. “Scorpio Calsandre is your nephew,” he murmured dazedly.
~~~~~~~~~~~~~~~~~~~~~
That story actually will be contained in at least one entire book, called Guardian. So to wrap up, there are ways to do it. Give your reader the background, but leave the details for another time when you have more space. As a tip, ask yourself: "Am I out to write a history textbook, or a story?"

I did something similar, Ordonel. In my book after the MC's father is killed the MC's mentor gives him about a two-page-long story about why his father was killed and what he was doing, why he was doing it, etc. It can be helpful to the readers to have the history be told from one character to another in a form of a legend or story rather than just three straight pages of history straight in the book.

I find that I've developed history that I have no plans of including in my book. I call it 'hidden history'. But even 'hidden history' can have repurcussions on the current events of your book. For example, if one civilization has been hit with frequent earthquakes in the past, perhaps that country's inhabitants are scared of the land and do many experiments with air travel. The original inciting event (the earthquake, or the 'hidden history') doesn't have to be explained but it lends depth to your story.

Logically, in your book you aren't going to describe every single event in the history of your world. But every single event that's ever happened in the history of our world has affected future events. So, the more events you can figure out in the history of your world the more shaping forces you have on the current events which you are writing about in your story. Make sense?

Alternately, if you are a very voracious (and talented) writer as Ordonel seems to be, you could just write a thirty book series about the entire history of your world. And Ordonel, you need to let me know when those are done...I want to read them! (How many are finished yet?)

I also wholeheartedly agree with what all the others have been saying too: only include the history in the book that is necessary. That's one of the problems I had in the original write of my book, which had around forty pages of history (in a seventy page book ). One of the things I'm working on in the rewrite is cutting down on unnecessary history that doesn't directly pertain to the story. In the rewrite I've got only a few pages of history (maybe six at the max) and they're all told to the MC through a series of conversations with his mentor, Forsvar.

This basically means that the MC is learning the history along with the reader. Because really, if a MC is going off on a quest or whatever he's not going to take the time to learn the entire history of the entire world, rather, he'll learn what is necessary for him to complete the quest. And that's all the reader needs to know, too.

OK, I'll shut up now.
eruheran

Yes, Eruhan, 'hidden history' is extremely important. I have a bit of that that explain why a particularly macho guy about turns to jelly when dealing with a certain type of small creature (A Tolron, or four-legged viper). You find out later on that he had had a narrow escape from death by those creatures a while back. 'Hidden history' can in some cases even change the course of a story-line.

As far as that narrating trick goes... have you ever read "The Book of Lost Tales", compiled by Christopher Tolkein? His father used that type of trick to make the story a whole lot more interesting. And it keeps you more involved, too!

And certainly, give only as much as is needed for the MC's quest to be completed. However... if you want more, make another MC, another book, and another quest that requires the information that you want the audience to know. Tip: just make sure that you tie that information together effectively, or the reader won't ever make the necessary connection! Or you can make an appendices, like Tolkein did for The Lord of the Rings.

P.S. As far as my own project goes, I only started writing back in late fall of '09. I have outlined seven books so far, and I've drafted the first four chapters of the first book... I'm working on the fifth chapter right now. (I'm doing alot of rewriting myself!) The prologue to that book, The Dead Civilization, can be found in the Courtyard under Story Excerpts for Discussion.