So, about Nilfgaard.

It's a large and advanced empire. Their tech is better (considering that the best generic gear in game is tagged "Nilfgaardian"). They are aggressive and expansive (who isn't?). They are less overt about their racism - yes, Dol Blathanna is essentially a "reservation" for the elves and the Daisy of the Valley is a collaborator - but at least nonhumans don't get lynched like they do in the North.

Their Emperor owes his life to Geralt.

And they are fond of wearing black.

However, throughout the game, implications are made that the Southerners are actually evil, and Emhyr is not just a conquest-happy tyrant, but someone significantly more sinister. What's the deal?

In the game near the end they seem to suggest the emperor might even have some supernatural flavoring.

How does he owe Geralt his life? Is that something from the books?

The emperor returned the favor in the last novel, so they are on the even standing.

One thing that bugs me about Nilfgaard, at least from the two books that are in english so far, is that apparently no one really knows what the Nilfgaard people actually are.

I remember a character near the beginning of Blood of Elves discussing it and saying that they are descended from elves, hence the elven tattoos you see on alot them, but they don't look like elves in any other respect and they don't seem to care about the plight of nonhumans, as was demonstrated during the war. And the way the nation is presented in those two books, it almost makes it seem as if the north knew this empire existed, but that none of the northern kingdoms felt it was capable of posing any kind of threat until they were close to war.

I could be remembering things wrong though. I only read each book once and the first time through each one I was getting confused for different reasons. In the first book I was getting used to the author's style of starting each story in the middle and then having characters bring up details in conversation that fill in the beginning later on, and the fact that it was a series of short stories that all dealt with different regions, people and problems made it hard to get a sense of the state of the world. In the second book I was trying my best to figure out who some of these people were and what the background of these problems are, since it seemed that there was ALOT info the author assumes you already know from reading Sword of Destiny, which has not been translated to english because the publisher doesn't think a short story compilation will sell well.

I would appreciate it if someone who has read all the story could just tell me if we eventually figure out what the Nilfgaard people are and how their empire developed?

Nilfgaard is actually based on Germany( The 3rd Reich)

That would be more like a Warhammer: 40K Dreadnought to me ;-)

TW3: Invasion of the Nilfgaardian Space Marines

Hey, there's an NPC called Warhammer in the inn in Flotsam. He sometimes come out to fight you when you attack the local guards.

Didn't know that ;) Maybe another wink from CDPR ;-)

Not so much. Why do people keep to repeat this?

There are so many differences between Third Reich and Nilfgaard, that I do not even know where to begin.

First of all, Nilfgaard does not know institutionalised racism. In fact, its people are far more tolerant than Nordlings and non-humans living in Nilfgaard (for example gnomes) are know to prosper.
Secondly, Nilfgaard is not a totalitarian state. It's autocratic, it's militaristic. But it does not want to control every aspect of life like real-life totalitarian states did.
Thirdly, Nilfgaardian conquests are completely different in nature. Nazi conquests in Europe (especially in eastern Europe) were quasi-religious holy wars with clearly established goals of wining the Lebensraum (mythological "living space") as well as enslavement and extermination of "subhumans" (Jews and Slavs). Milfgaardian conquests are nothing like that. Those are good ol' military subjugations with the purpose of expanding borders and extending influence.

Nilfgaard has much more in common with Roman, Spanish or Napoleonic empires than with the Third Reich.

Best typo ever.

OP: of course there are implications that they're evil. They're opportunistic and aggressive and everything that happens from the moment you start the game is a huge opportunity for them to take. I got the impression that all the hate for them revolves around an underlying fear and mistrust of them because of this. Remember--you're really not being given any opportunity to see things from their side, and everything you hear from others is colored by their experiences (which have been less than wonderful for many).

Well from the books, Nilfers sort of... umm... massacred Cintra, and basically burnt a few other towns down to the ground. Another thing is they pitted the elves against humans, and by the end of the war the elven race is severely damaged because a lot of virile elven youths died during / after the war.

From the game, the emperor, Emhyr var Emreis, the Spice Merchant Dancing on the Barrels of his Competitors, sort of... umm... ordered a few witchers to assassinate a few kings, sowing discord in the Northern Kingdoms.

Nilfs no better or worse than Northern Kingdoms, they just more efficient

Probably because the parallels that do exist are seemingly enough to warrant jumping to a conclusion, if you don't look at the whole picture.

There's the partition of Aedirn, which depending on your point of view parallels either the Munich Diktat (the partition of Czechoslovakia) or the Molotov-Ribbentrop Pact.

There's the division of the Nilfgaardian armies into "Army Group Center" and "Army Group East", parallelling the organization of the Wehrmacht, though not in detail.

And there's the whole Menacing Black Empire trope, which should not count for much. These are the best reasons to distinguish the Nilfgaardian Empire from the Nazis. They are neither totalitarian nor genocidal, and less racist than the Nordlings. Not entirely sure about this one. Nilfgaard has carried out wars and resettlement programs for the purpose of Lebensraum. But they did so without reaching anything like the genocidal policies of the Nazis. I absolutely agree. The strongest parallel is with the Roman Empire, which believed it was bringing civilization to conquered peoples and tolerated tribute-paying local rulers and local religions. I think Sapkowski himself once said that Nilfgaard was much more like the Roman Empire than Nazi Germany.