Rack was an evil warlock who has apparently resided in Sunnydale since 1998, though went unnoticed until some time in 2001, when he received a visit from Amy Madison and Willow Rosenberg, after they had exhausted all their own magics; this is the first his presence was brought to attention. Rack was, apparently, well known within the demon community.
Rack's hideout was cloaked, so that only demons and those with magic abilities could find it. Once inside, there was a waiting room, usually filled with with several people (magic junkies), and a back room where he lived.
Rack was the mystical equivalent of a drug dealer, as he would not share his magic until after Willow (whom he nicknamed "Strawberry") allowed him to violate her mentally. After this, Willow and Amy spent several hours with Rack, 'high' on magic. Willow's addiction to magic became immediately more severe and she goes back to Rack's apartment the next night with Dawn, grudgingly in tow. After being chased by a demon (a side effect of Rack's spell) and an injury sustained to Dawn's arm during a car accident, Willow renounced her use in magic and severed her contact with Rack and Amy.
Rack was not seen or heard from again until Warren Mears accidentally shot and killed Tara Maclay. Warren payed Rack for protection after he discovered that Buffy Summers had survived his assassination attempt. Rack warned Warren that Buffy was the least of his problems compared to Willow; Rack gave Warren the protection spells and some magical weapons he had payed for and sent Warren on his way. Shortly thereafter, Rack was visited by Willow, who killed the unstable warlock by sucking his life force into hers, which gave her a much needed magical boost.
According to Clem, Rack had a thing against demons of his kind, but this was only mentioned and never shown.