|The following information is from the Adventure Time comic book series. It may not be part of the same canon or continuity as the animated series.|
Lich Land is the final part of the dungeon that Simon Petrikov and Hunson Abadeer build. As the two are meeting about the design of the dungeon, The Lich shows up and knocks them both out for three weeks. During this time he builds his own part of the dungeon. He puts in a part of himself in the dungeon in case he is ever defeated. If someone tries to enter the dungeon, the Lich's Echo will be released into the world. Neither Simon nor Hunson ever go to check on what he did, and they both eventually forget about the dungeons entirely.
Lich Land is basically just the skull of the Echo of the Lich that burst through the ground after getting through the Nightosphere's Nightmareosphere. Though it appears the entrance to the dungeon is a portal inside of its mouth, this is just an illusion cast by the Echo. When one enters the portal, he becomes trapped in an illusion made by the Echo while it summons its minions to invade Ooo.