Latter-day Saints believe that all men and women are the children of God. Before life on earth, mankind lived in the presence of God as spirit beings. The term First Estate refers to that season of existence in God's presence.
What Happened in the First Estate?
In the First Estate, God created mankind as spirit beings. President Harold B. Lee taught about that creation.
- One of the oldest scriptures we have has come down to us in a miraculous way—we call it the Pearl of Great Price. One of the great books of that precious scripture is known as the book of Abraham. In that book … we find this: “Now the Lord had shown unto me, Abraham, the intelligences that were organized before the world was; and among all these there were many of the noble and great ones . . . And we will prove them herewith, to see if they will do all things whatsoever the Lord their God shall command them; and they who keep their first estate shall be added upon; and they who keep not their first estate shall not have glory in the same kingdom with those who keep their first estate; and they who keep their second estate shall have glory added upon their heads for ever and ever” (Abraham 3:22, 25-26).
- Now there are several precious truths found in that scripture. In the first place, we have just a hint, just a flash of what a spirit is. A spirit, did you hear Abraham saying, was an organized intelligence. This is the first beginning we have in our understanding of what a spirit is. It is an organized intelligence that lived as a spirit before this world was. Now what does a spirit look like? What kind of a conception do you have of that spirit?
- Well, the Lord has given through the Prophet Joseph Smith, an inspired answer, a part of which reads as follows: “That which is spiritual being in the likeness of that which is temporal; and that which is temporal in the likeness of that which is spiritual.” Now listen, “the spirit of man in the likeness of his person, as also the spirit of the beast, and every other creature which God has created” (Doctrine and Covenants 77:2).
- All right, now, you see me here as a mature physical man. There is a part of me that you can’t see with your physical eyes—that spiritual part of me that looks out through my eyes and gives me power of movement, and gives me a measure of intellect and intelligence. … Now that is the first truth that we learn—that there was an organized intelligence that was called … a spirit. 
Scriptural references to the first estate, often introduced as “in the beginning” or “from the foundation of the world,” briefly identified other events occurring in that heavenly realm. God the Father and Jehovah organized the earth's creation. “And there stood one among them that was like unto God, and he said unto those who were with him: We will go down, for there is space there, and we will take of these materials, and we will make an earth whereon these may dwell” (Abraham 3:24).
- “And it came to pass that the Lord spake unto Moses, saying: Behold, I am the Beginning and the End, the Almighty God; by mine Only Begotten I created these things; yea, in the beginning I created the heaven, and the earth upon which thou standest” (Moses 2:1).
Prophets spoke of a counsel in heaven where God's plan of salvation was declared to all of His children. The plan enabled the spirit children of Heavenly Father to gain physical bodies through life on earth, through Man's first mortal parents, Adam and Eve. God's purpose to “bring to pass the immortality and eternal life of man” (Moses 1:39) recognized that while living in a fallen world, mankind would sin and die. Since no unclean thing can dwell in His presence, God provided a Savior, Jesus Christ, to redeem mankind from sin and death. Mankind, endowed with moral agency, would choose to accept that redemption.
Lucifer opposed God the Father's plan, proposing his own plan to eliminate agency and force mankind's submission to Divine will. However, Lucifer demanded all of God's glory. God the Father rejected Lucifer's plan.
- That Satan...came before me, saying – Behold, here am I, send me, I will be thy son, and I will redeem all mankind, that one soul shall not be lost, and surely I will do it; wherefore give me thine honor.
- But, behold, my Beloved Son, which was my Beloved and Chosen from the beginning, said unto me – Father, thy will be done, and the glory be thine forever (Moses 4:1-2).
- “And the Lord said: Whom shall I send? And one answered like unto the Son of Man: Here am I, send me. And another answered and said: Here am I, send me. And the Lord said: I will send the first. And the second was angry, and kept not his first estate; and, at that day, many followed after him (Abraham 3:27-28).
John the Revelator recorded...
- And there was war in heaven: Michael and his angels fought against the dragon; and the dragon fought and his angels, and prevailed not; neither was their place found any more in heaven.
- And the great dragon was cast out, that old serpent, called the Devil, and Satan, which deceiveth the whole world: he was cast out into the earth, and his angels were cast out with him (Revelation 12:7-9).
Thus, Lucifer and his followers were cast out of God's presence and did not “keep” their first estate.
Consequences of Keeping One's First Estate
Accepting God the Father's plan in the First Estate, or pre-mortal realm, enabled a person to advance to the Second Estate, or in other words, be born with a physical body on this earth. Those who followed Lucifer forfeited their opportunity to receive bodies, and thereby ended their progression.