Chronopolis was send from 2400 AD to the far past. As a result, and to counter-balance Chronopolis, Dinopolis was pulled from the Reptite dimension. The two factions - Humans (evolved apes) from Chronopolis and Dragonians (evolved Reptites) from Dinopolis fought.
The Humans won, and El Nido was created. It was set within a mountain range in order to block it in and keep it away from the outside world, effectively sealing it away in an attempt to keep from changing the timeline. Using FATE to help design and implement everything, the Humans then erased their memory and established themselves on the man made El Nido archipelago. The Records of Fate were created and placed around the islands, effectively allowing FATE access to each person and helping to control, to a certain extent, their life (in order to avoid changes to the timeline).
Note: I have a theory that the original Humans from Chronopolis performed some sort of genetic manipulation and turned themselves into the demi-Humans we see in Chrono Cross. That way, they couldn't breed with humans (which we learn is actually possible in some situations - ie mermaid mama and Fargo). Without breeding with Humans (from outside El Nido), it would only further guarantee that the timeline couldn't be changed. Of course, this theory isn't perfect.
Eventually, around 600 AD-ish, outside Humans finally reached El Nido and settled in.
Note: Thus all the humans who live in El Nido are actually from outside El Nido are outside settlers, according to my theory as stated above. Also, I wonder if Dalton didn't help Porre gain access to El Nido, helping change the timeline and allow Porre to become a world superpower capable of conquering Guardia in 1005 AD.