Here is an excerpt from a study I did a few years ago called "The Nature of Man and His Death"(the whole thing is 31 pages - so I can't post it all).
I hope it is helpful:
If the dead exist after death, there must be some place of residence. The terms Hades and Sheol need examining to gain a picture of what they mean and how this affects our understanding of existence after death.
Matthew 10:28
And fear not them which kill the body, but are not able to kill the soul: but rather fear him which is able to destroy both soul and body in hell.
It is a pity that the King James Version translates two Greek works as one English word hell. It certainly makes things harder to understand. The two Greek words are Hades and Gehenna. Hades occurs 11 times in the NT and is never used to mean the grave, as some have suggested sheol means. Gehenna, the final abode of the wicked, is not the same as hades.
Spiros Zodhiates in his book
The Complete Word Study Dictionary New Testament, p81 has this to say:
The state of human beings in Hades is immediate and irreversible after death, although it does not constitute the eternal state, for Hades itself later becomes the exclusive place for unbelievers. It is cast into the lake of fire (Rev 20:14).
On p82, he goes on to say,
Unfortunately, both the OT and NT words have been translated in the KJV as hell (Ps 16:10) or the grave (Gen 37:35) or the pit (Numbers 16:30, 33).
Hades never denotes the physical grave nor is it the permanent region of the lost. It is the intermediate state between death and the ultimate hell, Gehenna
(emphasis mine)
Not every scholar is as adamant as Zodhiates, so it is necessary to look at a number of positions and to try to pull out a common thread.
The word Hades is derived from the Greek root words
a which means not and idein which means, to see. It is therefore the unseen or the unseen realm.
The Hebrew word Sheol is defined a number of ways by lexicographers, from being the grave to being the realm of the dead. It must be noted that the Jew already had two words for grave - keber and keboorah (Strongs number 6913 and 6900). In the Septuagint (Greek Version of the OT) Hades is put for the Hebrew Sheol 61 out of 65 times, so we can be fairly confident that they are almost equivalent terms in the OT usage.
Girdlestone in his book
Synonyms of the Old Testament pp306-308 deals with Sheol and Hades. He has this to say:
There is no reason to doubt that what the grave or pit is to the body, Sheôwl (7585) is to the soul. It is the nether world, and perhaps this would be the best rendering of the word. Not in one single passage is it used in the sense of one place of punishment after the resurrection
The key to understanding what this word means, I believe, is in trying to grasp its most elementary meaning, or the root words from which it came.
From looking at the various verses, we can say this of Sheol: it is a place of separation form earthly affairs (Eccl 9:5-6):
For the living know that they shall die: but the dead know not any thing, neither have they any more a reward; for the memory of them is forgotten. 6 Also their love, and their hatred, and their envy, is now perished; neither have they any more a portion for ever in any thing that is done under the sun.
Note: The phrase know not anything does not prove unconsciousness or non-existence. Consider the following quote:
1 Sam 20:39
But the lad knew not any thing: only Jonathan and David knew the matter.
The lad in question did not know anything about the particular matter; it does not mean he was unconscious or non-existent.
(See also 2 Sam 15:11).
In Ecclesiastes, we have proof that the dead have no more part in or knowledge about earthly affairs, i.e. they know nothing about what occurs on the earth (under the sun means on the earth). We do not have proof that they cease to exist. (see also Neh 4:11)
The Essence of What Sheol Means
There is a clue to the essence of what Sheol means in the account of Jonah 2:1-2:
Then Jonah prayed unto the LORD his God out of the fishs belly, 2 And said, I cried by reason of mine affliction unto the LORD, and he heard me; out of the belly of hell cried I, and thou heardest my voice.
When we think of Jonahs situation, we can see that he was hidden from sight, in a dark place and he was separated from other people. He had no part in the things occurring in the world of the living, he was separated from it. He was unseen to those on the earth.
If we take the primary idea behind Hades and Sheol as being unseen, we can conclude that, depending on context, these words could refer both to the grave and to a realm of the dead where disembodied spirits abide awaiting the resurrection. If we consider the body of a person, Sheol would be the grave or receptacle of the body.
If we consider the spirit of a man, Sheol in this context, would be the state after death and before the resurrection. A person whose body is in the grave has had their spirit depart from their body. Therefore, if we refer to one, it would generally infer the other. The following quote conveys similar ideas to those just raised but in more scholarly terms:
On the whole, death in the OT (apart from the Wisdom literature) does not suggest cessation of being or even loss of consciousness. It is, indeed, a radical change in existence, but one that does not altogether preclude existence. This explains the fluctuating and ambivalent nature of terms such as abaddôn, bôr, hedel, eōl
[sheol], and ahat, all of which share the meaning pit or grave on the one hand, and the underworld, abode of the dead on the other. The grave, then, is an external, visible entree to and representative of an unseen different realm.
The New International Dictionary of Old Testament Theology and Exegesis Volume 2 p 888
Refrus