In Rokugan, samurai priestesses known as Shugenja commune and interact with spirits known as kami. This very simple word has a very complex definition, because it can mean both "god" and "spirit" and has no sense of scale whatsoever; pebbles contain kami, as do rocks, boulders, and mountain ranges. The clan founders are also kami, as well as the sun goddess Amaterasu, the moon god Onnotangu, the Seven Greater Fortunes, and the many Lesser Fortunes.
The easiest way to explain a kami is also the most vague:
[A kami is] any thing or phenomenon that produces the emotions of fear and awe, with no distinction between good and evil.For purposes of simplicity, the kami we are discussing today are the mikokami, a.k.a. beautiful tiny gods. These are the "eight million gods" of folklore. We'll discuss the other kinds of kami later, but right now, when I say kami, be aware that I mean "elemental spirit" or "divine force of nature".
Kami live inside all material things, and at the same time are those things. If you can't conceive of something being a thing, and yet not being that thing because it is really the force which lives inside the shell of the thing, then you're going to have severe trouble from here on out. If it helps, think of your mind/soul/sense of self as a kami; without that, your body is just a shell, but at the same time your body is such an extension of yourself that it is you.
Now here is where things get complicated. If we assume that every river is Rokugan has a kami -- which every shugenja will tell you is true -- what happens if you draw a cup of water from that river? Is the river spiritually diminished? Does a new "cup of water" kami spring into existence? What happens when you drink it? Or when the river runs into the sea?
This is a riddle which baffled the Rokugani for centuries, and there are essentially two answers to it, one philosophical and one practical. The philosophical answer, which came about in the early days of the Empire, is that all are one: You are the cup, which is also the water, which is also the riverbank. Everything, everything, is linked and interconnected to the point where it doesn't matter, all of us are also all of creation, one giant god-soul, and once you realize this, you are able to live in harmony with the world because the world is you and you are the world, and the soul always lives in harmony with itself. This is known as enlightenment, and it's also very, very hard to achieve, because humans have all these senses telling them that no, I am completely different from that tree over there. A good chunk of enlightenment is un-learning concepts such as "I am an individual" and "I can trust what my senses tell me." 
The practical answer is that kami are infinitely divisible. Take two ladles of water, each containing two water kami, and pour them into a teapot. How many water kami do you have? Just one. Boil some tea, and pour that tea into four cups. You now have four water kami (possibly five if there's still some left over in the pot). Dump it all back into the river, and boom, it's all one kami again. They are aggregate spirits who seek concentration, yet lose none of their power if you divide them up. The smallest drop of water contains the same amount of power as the entire ocean. 
Now if you combine these two answers into one thought -- "all is one" and "potency is not lost through division" -- you arrive at a frighteningly powerful conclusion: every single droplet of water in Rokugan is linked to every other droplet of water, meaning that all water everywhere is a single, massive kami. This monstrously powerful kami is what is known as the Water Dragon, and there are other Dragons for the other elements. (Please don't ask about the Void Dragon right now, it'll just break your brain.)
While all kami may technically be called "gods", these Dragons are what humans think of when they hear the word god: powerful, alien, and distant. The Dragons are as far removed from humanity as humans are from bacteria, and understand them about as well. Therefore, every Dragon has an Oracle: a human whose soul is linked to that Dragon, and therefore shares a fraction of its power (and a fraction of nigh-infinite power is still a lot). These Oracles serve as eyes and ears for the Dragons, enabling them to understand from a human perspective all that happens on Rokugan and subtly influence events. 
What is interesting about Dragons is that they are dichotomous and somewhat contradictory. On one hand, what separates the Dragons from the Fortunes (other gods which will be explained later) is that they embody concepts that don't require human agency to exist. Objectively speaking, air always has been air and always will be air, and no amount of worship (or lack thereof) is going to change that. But on the other hand, air is more than just literal gas; it also represents connection and empathy. Fire is flame but is also burning passion; earth is determination and resistance in addition to being rock and soil; water is liquid as well as the strength that erodes rocks. It is entirely possible that this embodiment of abstract concepts is the result of the Dragons seeing themselves through human eyes.
Therefore: in Rokugan, there are lots of tiny spirits which are actually big spirits which are actually Dragons who then take human avatars who try to understand the humans who are trying to understand the tiny elemental kami spirits, and in so doing, influence the Dragons which influences the elements which influences the people.
All are one.
 This will be discussed in greater detail under the "Shintao" entry.
 The only difference is how well they apply that power, which is a combination of perception (smaller spirits don't notice as much) and leverage (smaller spirits don't know where best to focus that power). This is typically how shugenja achieve spell effects, by telling the spirits "You can achieve an awful lot if you do X thing at Y time and Z place for me."
 As a brief aside for fans of the card game: this "Dark Oracle" business is nonsense. Just because something resides in Tengoku doesn't make it virtuous, as Lord Moon aptly demonstrates. The Elemental Dragons find morality to be a strange, alien concept. Fire is neither good nor evil: it simply is. The waters that flood also irrigate. Air gives breath but also creates storms. Earth shelters, but also quakes.
Also, I pretty much ignore everything that happens after the Clan Wars anyway.