To answer that, we go back to the ancient Celts. It was during the reign of Tighermas, a legendary king of Ireland. It was said that Tighermas overthrew his predecessor Conmael in the Battle of Oenach Macha and within a year won twenty seven battles. He was also the first to have gold smelted in Ireland, and the first to have clothes dyed purple, blue and green and decorated with brooches, fringes, and ornaments. He also gave drinking horns to his followers.
Tighermas was said to have died with 4,000 on the plain of Magh Slecht on October 31st 1413 while worshipping Crom Dubh or Crom Cruaich (there are conflicting stories as to whether these were the same god or not). Most legends have the Dullahan deriving from Crom Dubh, as he was supposedly worshipped by a larger area. Crom Dubh was a fertility god who reportedly demanded human sacrifice as a form of worship. Not only human sacrifice, but the sacrifices were to be beheaded.
This may or may not have been exaggerated by the Christian groups that came to Ireland, led by Saint Patrick. These groups demonized anything that was not 100% Christian and destroyed much of Ireland’s history because it was tied into religions that were not Christian.
Either way, so the legend goes, Crom Dubh would not be denied his annual allotment of souls and took physical form as the Dullahan.
The Dullahan is a strikingly scary figure, dressed in all black on either a black steed that snorted fire or aboard a carriage drawn by six black horses that ran so fast the wheels of the carriage was known to start fires along the sides of the road in the bushes. The Dullahan had no head upon his shoulders, but rather in his hand or in a saddlebag. Legends say that the head had an eerie glow about it, and had the texture of moldy cheese. An insanely evil smile stretched from ear to ear. If he lifted this head up, the Dullahan could see for great distances. Sometimes carrying a lantern in the other hand to help guide his way, oftentimes the spare hand clutched a long whip made from human spines.
The Dullahan could not speak, save for one name on each of its journeys: his intended target. Wherever the Dullahan stopped, someone would die. No matter how well locked a gate was, it would fly open for him. If you were not his intended target, it would be in your best interest to not let him catch you even looking at him, much less get in his way; for the best case scenario would be that you would get a face full of blood thrown upon you, or perhaps the whip may be used to remove you from his path.
If it was your name that he was calling, your soul was summoned to go with the Dullahan, and this journey would end.
The Dullahan was death itself. But, not only did your physical form die, the Dullahan captured your soul, a further stretch from what we know as the Grim Reaper.
There was no real defense against the Dullahan, as all doors and gates opened for him. The only thing that can possibly slow down the Dullahan is gold. The Dullahan has an irrational fear of the precious metal. Even a small amount of gold can be enough to scare the Dullahan away for a while. However, if it is your time, the Dullahan will succeed in capturing your soul.