James was a vampire who roamed around with his lover Elisabeth. For a time, they both grouped with Angelus and Darla back in 1767. He probably left with Elisabeth soon after, as James was discussed in the way Angelus would sell out Darla to save his own skin. Also combined with the fact Angelus hated him and felt he attracted to much attention (he would later feel the same way about Spike.) In 2001, James and Elisabeth went to LA, unaware that Angel now lived there with a soul ready to protect humans. One night Elisabeth attacked some college students and Angel killed her. James was furious, and wanted revenge so he went to a Slod Demon, which was able to make him invincible and immune to the vampire curses such as wood and sunlight. Temporarily anyways, after six hours he would die. James figured it would be enough to get his revenge on Angel, but Angel was able to hold him off until the time was up.
The show doesnít say exactly where James and Elisabeth came from, but it is possible that Angel and Darla sired them for some company. They did the same with Dru, and later let her sire Spike. Itís also possible they were just another vampire couple that the two ran into and teamed up with for a while.
James was able to become invincible as if he had the Gem of Amara on. The surgery is never shown in detail, and it is never shown what the Slod demon does. All we really know is that at the very least the Slod Demon removed James's heart and injected him with something. However, the Slod Demon was a collector, and perhaps the heart was not needed to be removed in order to make James invincible, perhaps it was only a payment. This is possible, but I think it's unlikely. I believe the ritual involved some sort of magic (possible some mixture of fluids from the Slod as well), plus the removal of the heart at the same time. This would result in power for the vampire, but the magic would eventually wear off for whatever reason, and since James no longer had a heart, he dusted. It's possible that the heart was dusted too, or the Slod Demon some how preserved it. Otherwise, it would have dusted as soon as it was removed from his body. It's easy to see why more vampires wouldnít do this ritual. Vampires by nature are very selfish and would not sacrifice themselves. A slod demon is also probably quite hard to get a hold of, and they are needed to do the ritual, simply removing the vampire's heart would, by all evidence, just kill the vampire.
Jamesís relationship and devotion to Elisabeth doesn't really change the way I think about vampires. Some could say it proves vampires have elements of a soul, but I don't believe love has anything to do with a soul. A soul is just a conscience or guiding force. It doesn't mean a vampire can't love, or be devoted to someone. Besides, James and Elisabeth were fanatic and obsessed about each other. The whole devoted lovers thing was part of their personality, or their gimmick, if you will. James needed Elisabeth in a sick psychological way and when she died, he had no reason to go on.