Chapter VII concerns Dyer's interpretation of the colonisation of Earth by the Elder Things, and their subsequent wars with later colonisers.
The bas-reliefs of the building depicts the Elder Things as flying to Earth without the aid of a vessel. Though affected by extreme weather, they apparently survived the vacuum of space by imbibing herbal preparations. Their curious bodies make them masters of land, air, and sea, thus they established many land and sea cities.
In the deep sea the Elder Things fashioned from inorganic material their ancient slave race of the Shoggoths, which were previously believed to never reside upon Earth. The Elder Things commanded the Shoggoths via psychic manipulation. The Shoggoths eventually developed some manner of independent thought as a side effect of excessive mental manipulation by the Elder Things; this prompted a war of subjugation which was eventually won by the Elder Things. Around the time that the Elder Things created the Shoggoths, they also produced early Earth life. Rather than the deliberate genetic manipulation applied to Shoggoths, the Elder Things were content with allowing other life to develop naturally, only interfering when a certain species potentially posed a threat. This was the age of the Elder Things on Earth.
The next great colonising force was the Star Spawn of Cthulhu, a race of bipedal reptilians with tentacled faces, reminiscent of Dread Cthulhu though much smaller. The Star Spawn waged war against the Elder Things for dominion over Earth. The war eventually ended in a peace deal, where the Elder Things retained all their ancestral land, and with new unsettled land going to the Star Spawn. Eventually, an apocalyptic event struck the Star Spawn, as worldwide their cities sunk to the bottom of the ocean, including their capital of R'lyeh.
The third colonising force was the Mi-Go from Pluto, also known as the abominable snowmen of the Himalayas. These two waged war against the Elder Things and proved the stronger force, eventually forcing the Elder Things back to their underwater cities and their sole remaining land city in Antarctica, where they first landed on Earth. The Elder Things attempted to use their powers of space travel and biological engineering to assert dominance over the Mi-Go, only to discover that their technological knowledge had decayed and was lost to them.
Like the previous chapter, Chapter VII does a lot of work to establish some form of plausible sci-fi explanation for the weird creatures on Earth, rather than leaving origins unexplained and open to supernatural interpretation. He puts a nail in the coffin for Cthulhu here by explicitly stating that R'lyeh was deliberately built by a spacefaring culture who resemble Dread Cthulhu.
Of note from this chapter was the descriptions of the Mi-Go and Star Spawn relative to the Elder Things. While the Elder Things had fixed forms, the Mi-Go and Star Spawn appear more plastic in nature, capable of altering their forms to suit their needs. This again is explained away as the Elder Things originating from a point in space-time not unlike our own, while the other two races originate from some deep and distant abyss where our conventional knowledge of the sciences need not apply.
Chapter VIII concerns the further decline of the empire of the Elder Things.
Dyer is now convinced that this great city is no other than the evil Plateau of Leng, of which even the great occult scholar Abdul Al-Hazred was fearful. The carvings of the Elder Things speak of the geography surrounding the city, including a much vaster mountain range which was the source of the great river that spanned the city. Even the Elder Things feared those mountains, for any who built near that range found their constructions falling to ruin. They even came to fear that which the river bore down from the mountains. Dyer recalls Kadath of the Cold Wastes mentioned in the Pnakotic Manuscripts, and is thankful that he has not seen that range.
Though the Elder Things were hardy folk, the approaching ice age originating at the poles caused ever decreasing crop yields, resulting in a population crisis. The Elder Things determined to build a new city, in the vast depths of an underground ocean which would be uniformly heated by the planet itself. To this end, they fashioned a new breed of intelligent Shoggoths. These new Shoggoths were capable of verbal communications, following complex instruction, and forming intelligent questions.
Dyer ponders on this underwater city and whether it still stands. He wonders whether it is possible for the Elder Things to have survived uncontacted for long millenia, and is then disturbed by the thought of the remarkably preserved specimens which disappeared after the slaughter at the camp.
It sounds to me like we have in fact found Unknown Kadath. While it lies in Antarctica in the waking world, it lies far to the North of the world of Dream. It is also notable in both worlds for its proximity to the Plateau of Leng and it's incredible size compared to other mountain ranges. A brief thought I had is that perhaps the fables of these locations are the cause for their representations in the Dreamlands. After all, these fables can lead to many dreams of these horrific places.