Sheol is sometimes compared to Hades, the gloomy, twilight afterlife of Greek mythology. The word "hades" was in fact substituted for "sheol" when the Hebrew bible was translated into Greek. The New Testament also uses "hades" to refer to the abode of the dead.
By the second century BC, Jews who accepted the Oral Tradition had come to believe that those in sheol awaited the resurrection either in comfort (in the bosom of Abraham) or in torment. This belief is reflected in Jesus' story of Lazarus and Dives. At that time Jews who rejected the Oral Tradition believed that Sheol meant simply the grave. According to the Yeshiva Beth HaShem website, "While the KJV and other translations sometime translate Sheol as 'Hell' it merely means 'the grave.'
Anglicans, who do not share a concept of "hades" with the Eastern Orthodox, have traditionally translated "sheol" (and "hades") as "hell" (for example in the King James Version). However, to avoid confusion of what are separate concepts in the Bible, modern English versions of the Bible tend either to transliterate the word sheol or to use an alternative term such as the "grave" (e.g. the NIV). Roman Catholics generally translate "sheol" as "death."
The origin of the term sheol is obscure.
One theory is that Sheol is connected ša'al, the root of which means "to burrow" and is thus related to šu'al "fox" or "burrower".
Biblical scholar and archaeologist William F. Albright suggests that the Hebrew root for SHE'OL is SHA'AL, which means "to ask, to interrogate, to question." Neal A. Maxwell Institute scholar John Tvedtnes connects this with the common theme in near-death experiences of the interrogation of the soul after crossing the Tunnel.
As regards the origin not of the term but of the concept, the Jewish Encyclopedia considers more probable the view that it originated in animistic conceits: "With the body in the grave remains connected the soul (as in dreams): the dead buried in family graves continue to have communion (comp. Jer. 31:15 ).
He that scattered Israel, knows where to find them. It is comfortable to observe the goodness of the Lord in the gifts of providence. But our souls are never valuable as gardens, unless watered with the dews of God's Spirit and grace. A precious promise follows, which will not have full accomplishment except in the heavenly Zion. Let them be satisfied of God's loving-kindness, and they will be satisfied with it, and desire no more to make them happy. Rachel is represented as rising from her grave, and refusing to be comforted, supposing her offspring rooted out. The murder of the children at Bethlehem, by Herod, Matthew 2:16-18, in some degree fulfilled this prediction, but could not be its full meaning. If we have hope in the end, concerning an eternal inheritance, for ourselves and those belonging to us, all temporal afflictions may be borne, and will be for our good. –Matthew Henry's Commentary on Jeremiah 31:10-17