The soul is really undefinable in physical language terms. It cannot be destroyed, broken or expanded, but can change its characteristic and psychic family, while always remaining itself.
Perhaps the best way we can explain the nature of the term soul is that it is an individuated expression of spirit that provides animation for the physical body. The physical body, along with personality, are temporary vehicles used by the soul to express itself in the world of matter.
The soul chooses the type of body and personality to express itself, even if it is mentally or physically handicapped. Its expression may be limited according to the level of development, but ultimately, due to the law of compensation, they will be able to express themselves in other ways that would not otherwise be possible. All life, especially that of the spirit, is progressive. However, its individuated expression [soul] may not always be.
As each soul has a primary desire to evolve into higher planes of consciousness, it initiates certain experiences such as earthly incarnations. Experiences in the world of matter create a form of separation from the world of spirit. This is necessary in order to fulfill certain desires that will ultimately reflect the reality and subsequent growth of each individual (and the whole).
Each soul that animates a physical body, forms part of a group soul. Each soul or essence of the group adds its own unique contribution. Further, it is the collective experience of group souls that ultimately forms the oneness of spirit. This is because as we progress and merge along the infinite path toward perfection, our consciousness aligns itself with that of the Great Spirit.
The human soul has not evolved from every stage of life--that is the physical ancestry. New souls do not come from anywhere. The soul, like spirits, do not emerge, or have any beginnings or ends. It is part of the Collective Spirit which always was and always will be. This is the true meaning of the Biblical statement: "Before Abraham was I-Am." The Collective link we all have with the Great Spirit, means that none can be cut off, banished or excommunicated. For all eternity, we are bound up inextricably with the power of life, in whatever form it takes.
So the physical world does not create souls. What we do then, is to create channels for souls to manifest; providing individuated expressions of spirit.