I recently read The Taoist Body by Kristofer Schipper on the advice of my Taoist teacher Liu Ming. I highly highly recommend that anyone with even a passing interest in Taoism read this book. The Taoist religion is the least understood of the major religions and this is one of a miniscule number of books available in English bridging this gap. According to Ming it's also the best, with Taoism: Growth of a Religion a close second (which I will start soon).
From the book:
"The widespread ignorance concerning Taoism can by no means be imputed to the nature of the Chinese religion as such: until the persecutions that descended on it a century ago and which still go on, it was alive, visible, and acccessible in daily life. Taoism moreover, which can be seen as the most elevated expression of Chinese popular religion, possesses a rich and vast literature comprising more than a thousand works, covering all aspects of its traditions. Rather, this loss of interest on the part of Western scholars is due, I think, to the difficulty in understanding Chinese religion. The very notion of religion as we define it in the West is an obstacle, and a great number of observers have fallen into the trap of failing to see that in a society so dissimilar from ours the religious system must also be very different.
In everyday life, religious activity had no particular name or status, since - as the French sinologist Marcel Granet was fond of pointing out - in China, religion was formerly not distinguished from social activity in general. Even its most distinguished representatives, the Taoist masters, were generally integrated in lay society and enjoyed no special status. In modern times and in imitation of Western culture and its concept of religion as something setting humanity apart from nature, the authorities have applied themselves to the task of classifying and dividing the people, trying in vain to convince the ordinary peasant that he was either a Confucian, a Buddhist, a Taoist, or more recently still - in keeping with the party line - simply "superstitious". In fact, none of this really applies and certainly no ordinary person would call himself a Taoist, since this designation always implies an initiation into the Mysteries, and consequently is even now reserved for the masters, the local sages.
Traditionally, no special term existed to express religious activity. In order to translate our word religion, modern Chinese usage has coined the term tsung-chiao, literally "sectarian doctrine". This may be correct for Islam or Catholicism, but when this term is used for the Chinese popular religion and its highest expression, Taoism - that is to say, a religion which considers itself to be the true bond among all beings without any doctrinal creed, profession of faith, or dogmatism - it can only create misunderstandings.
One may say that it is the absence of definition that constitutes the fundamental characteristic of Chinese religion."
One of the things I really enjoyed in this book was reading about all of the Taoist deities. Taoism has been imported mostly as a philosophy and later as a form of Yoga while it's incredibly rich, almost exhaustive pantheon of gods for nearly anything you can imagine has been so thoroughly neglected that most people (myself included) didn't even associate deities with Taoism at all.
Here is a fascinating blurb on the Taoist conception of humans, demons and gods:
"Ordinary people thus have no need for their souls to be saved, given that true salvation occurs in the natural course of things. As we have seen, the aid of the gods results in a debt to be repaid and expiated. If all goes well, a person owes nothing to the gods, nor will he become a god himself. Indeed the pantheon's origin lies in the extraordinary, in the accidental.
...
The God of the Hearth is supposed to have been a man who committed suicide by leaping into a kitchen fire; and the Earth God, a brave servant who died of the cold in order to protect his mistress. In popular legends, none of the gods has died of natural causes; the have all either been executed, or have committed suicide, or died virgins - a terrible fate. Thus, by definition, they are all ku-hun, orphan souls. Normally, among the ku-hun, virgins who - like Ma-tsu - died young without fulfilling their female destiny are especially feared, for they have their maternal power intact and ready to avenge themselves. And according to the normal scheme of things, Lord Kuan or Mr. Kuo ought to have become fearsome demons.
What then is the difference between a demon and god? Honestly speaking, there is no ontological distinction between them, only a difference of spiritual power. If Mr. Kuo had been an ordinary man, his violent death would have made of him a common demon, one of many. But his moral strength, the determination and intensity of his devotion as a perfect servant, enabled him to transcend his humble position. The spiritual power of his souls was no longer that of a simple person who died a violent death, but that of a god.
...
The road to sainthood is long. The concentration of one's vital forces, maintained through self-perfection, makes one a formidable demon becfore one becomes a gentle and beneficial power. The career of each being, as carefully codified by the Taoist masters, leads from the status of minor local spirit, even from the spirit of a stone or a plant, to the summits of the heavens where spiritual strength becomes astral. All the same, those higher beings are capable of wordly feelings. Despite her elevated position, Ma-tsu still remains subject to her own whims, and Lord Kuan, who is just as illustrious since he is a Celestial Emperor, remains capable of turning his anger on those who fail to respect him. The demoniacal character of the minor gods is clearer still and is expressed in their iconography itself.
As long as they are gods, these beings remain subject to the rule of time. No investiture, not even a stellar one, lasts forever, for everything that has a beginning also has an end, and to concentration correspond dispersal and diffusion, which are the priveleged actions of the Tao."