In The Elder Scrolls V: Skyrim, players have the chance to meet the Daedric Prince of Madness, Sheogorath, who at this time is actually the main character from The Elder Scrolls IV: Oblivion, the Hero of Kvatch. Sheogorath is just one of a handful of Daedric Princes that can be encountered in Skyrim, and he only alludes to his former identity. Mortals apotheosizing isn't unheard of in The Elder Scrolls, but it's still a significant event, despite Skyrim never directly addressing it.
A quest called "The Mind of Madness" can be received from a man named Dervenin, who appears destitute in the city of Solitude. He tells the Last Dragonborn that his master has taken a protracted vacation, abandoning his subject for many years. It doesn't become clear that Dervenin's master is Sheogorath until a bit later, but if players accept the quest, they can earn one of The Elder Scrolls' many Daedric artifacts, the Wabbajack. Before long, "The Mind of Madness" turns into a surreal romp through the psyche of a long dead, mentally unhinged emperor.
Dervenin will send the Last Dragonborn to the Pelagius Wing of Solitude's Blue Palace, which has been shut for centuries, supposedly haunted by the ghost of Pelagius Septim III, the Mad Emperor. Once players find their way into the sealed wing, they'll be transported into Pelagius' mind, where Sheogorath has been taking his sabbatical. When Pelagius the Mad ruled Tamriel, nearly five centuries before the events of Skyrim, his eccentricities included biting guests at the White-Gold Tower, attempting to communicate with an Argonian ambassador through grunts and squeaks, and defecating on the floor of the palace after ordering servants to clean. Pelagius III is one of the most notorious figures in the history of The Elder Scrolls' Septim Dynasty, and Sheogorath will return to his Daedric duties if the Last Dragonborn can cleanse Pelagius' madness.
Sheogorath, Jyggalag, & The Hero Of Kvatch
The troubled consciousness of a deceased emperor seems an odd place for a Daedric Prince to vacation, but it's not a far cry from the plane of Oblivion over which Sheogorath rules. The Shivering Isles are a reflection of Sheogorath's own madness, primarily split into two biomes - Mania and Dementia. While only mentioned in Skyrim, the Realm of Madness is the eponymous setting for Oblivion's second expansion, Shivering Isles. When a mysterious door appears on an island in the center of Cyrodiil's Niben Bay, the Hero of Kvatch enters to answer the call of Sheogorath, who is looking for a champion.
Sheogorath enlists the Hero of Kvatch to stop the imminent Greymarch, a destruction of the Shivering Isles performed by Jyggalag, who isn't featured in Skyrim. Jyggalag is the Daedric Prince of Order, antithesis to Sheogorath's Madness, and the Greymarch occurs at the end of every era, restoring order to the Shivering Isles and forcing Sheogorath to reseed the madness that will consume his realm during the next epoch. The Oblivion Crisis precipitates the end of Tamriel's Third Era, and Sheogorath wants the Hero of Kvatch to confront Jyggalag and end the cycle of destruction.
Throughout Shivering Isles, the player will come to learn that Sheogorath and Jyggalag are one and the same. Jyggalag's command of Order made him a threat to the other Daedric Princes, who turned him into Sheogorath and began the tradition of the Greymarch. Sheogorath is cursed to periodically return to his original form and lay waste to his own realm. Prior to Oblivion, Jyggalag was one of The Elder Scrolls' more obscure Daedra, only mentioned by in-game books, but he is the final boss battle of Shivering Isles. Defeating Jyggalag in battle breaks the curse and permanently restores Sheogorath to his original form, leaving the Realm of Madness without a ruler.
Skyrim's Sheogorath Is Canonically The Hero Of Kvatch
Before Jyggalag departs the Shivering Isles to once again wander the planes of Oblivion, he appoints the Hero of Kvatch the new Prince of Madness. The player is granted the Staff of Sheogorath, a host of godly magical powers, and the ability to perform tasks befitting the ruler of the Shivering Isles, such as sending royal guards to defend the realm's denizens. With his parting words, Jyggalag calls the Hero of Kvatch by the name Sheogorath, and suggests they will one day grow into their station as the strange, Lovecraftian Daedric Prince. The new Sheogorath seems to have done just that, eventually spending a couple decades trying to cheer up the tormented spirit of Pelagius Septim III.
When the Last Dragonborn arrives in Pelagius' mind, Sheogorath is trying to cheer up his friend, and makes a few references pointing to his previous identity as the Hero of Kvatch. He suggests Pelagius was perhaps the best Septim to ever sit on the throne, except Martin, who "turned into a dragon god" to fight Mehrunes Dagon. Sheogorath then reminisces about being present for the Oblivion Crisis, specifically alluding to four events in Oblivion: "Butterflies" that swirled when the Hero of Kvatch was first transported to the Shivering Isles; "blood" from one of the Nine Divines, retrieved from the armor of Tiber Septim in Sancre Tor; "a Fox" cursed by another Daedra to live anonymously as the leader of Oblivion's Thieves Guild, the Gray Fox; and "a severed head" of a woman enshrined by her son, who pledged revenge on the Dark Brotherhood that murdered her.
Sheogorath finishes his musings with a remark on the excellent cheese available at the end of the Third Era, a food he mentions often. Although Sheogorath has memories of his past self, the Hero of Kvatch seems to have been entirely consumed by the madness required for the position. Skyrim's Sheogorath bears a similar appearance to his Oblivion counterpart - an aging man dressed in flamboyant attire that expresses the duality of the Shivering Isles' Mania and Dementia. Despite Sheogorath's innate unpredictability, quests associated with the Daedra usually reward the player with the Wabbajack, a staff that transforms creatures into a different, random form. With his prevalence in Daggerfall, Morrowind, Oblivion, and Skyrim, it wouldn't be surprising to see Sheogorath return in The Elder Scrolls VI. Unless something happens to the Prince of Madness after the events of Skyrim, Sheogorath should continue to be the Hero of Kvatch, only further removed from their former identity.