According to Jiraiya, the Sage was a priest who appeared long ago in an age of endless war. He was the first to explain the truth about chakra and tried to use his power and wisdom to lead the world to peace instead of war. The Sage travelled throughout the world, spreading his ideas and religion, the Shinobi Sect (忍宗, Ninshū), which eventually came to be known as ninjutsu. His great deeds and true desire to bring peace to the war-torn world led him to become widely known as the Saviour of the World.
According to Madara Uchiha, centuries before the beginning of the main story line the Sage defeated the most powerful demon in the ninja world, the Ten-Tailed Beast. In order to protect the world from the Ten-Tails, the Sage developed a new technique. The Sage was able to use this technique to seal the beast into his own body, allowing him to harness and control its terrifying power and making himself the first jinchūriki. Though he had successfully sealed the Ten-Tails, its power was so great that the seal would break after the Sage's death. Aware of this, the Sage used the rest of his strength to divide the beast's power into nine parts, which would become known as the nine tailed beasts. He then used the Chibaku Tensei to seal the Ten-Tails' remains and send them into the sky where no one could ever reach them, thus creating the moon. The Sage would leave behind a tablet for his descendants which details his history with the Ten-Tails. Only those who possess the Rinnegan can fully decipher what is written on the tablet, while a person with a different dōjutsu can still partially interpret the information.
The Sage's ultimate wish to establish peace throughout the world was a goal that could never be achieved within his lifetime alone. Knowing that his end was approaching, the Sage entrusted his strength, dream, and legacy to his two sons. The older son, who inherited the Sage's "eyes": the power of his chakra and his spiritual energy, believed that power was the true key to peace. The younger son, who inherited the Sage's "body"; his willpower and physical energy, believed that love was the true key to peace.
On his deathbed, the Sage chose his younger son to be his successor. Overcome by bitterness and envy, the older son attacked the younger, beginning a war between them. Their feud would continue on through their descendants: the Senju clan and the Uchiha clan.
Centuries later, the Rinnegan itself would resurface in Nagato. Nagato's connection to the Sage has yet to be explained, although Jiraiya believed that the Sage could have somehow been "reborn" as Nagato in the present era. Nagato himself, however, admitted that his own power paled in comparison to that of the Sage. Still others, such as Kakashi Hatake, believed that the Sage is merely a myth, and that the Rinnegan is merely a mutation.
The Sage developed the first jutsu capable of sealing a tailed beast inside a human body, making himself the first jinchūriki in history. Having the Ten-Tailed Beast's power contained inside him, the Sage developed immeasurable power that far surpassed all of his peers. Even on his deathbed, he was able to employ Chibaku Tensei on a massive scale and use that chakra to create the moon and seal away the body of the Ten-Tailed Beast within, a clear testament to his incredible power.