During the final season an alternate universe was created. This alternate universe really wasn't, it was a depiction of the afterlife, with all the main characters living in a sort of limbo until they all awakened and were ready to "move on."


As for what you watched all along, it all happened. Death came to all at some point or another. Some died during the timeline of the show, and some like Hugo died a long time after (after he'd spent a long time as keeper of the island. Jack died shortly after helping that last group escape the island on the plane.


The moral of the story (and metaphor for the show): Life isn't about the ending, but the journey along the way.