Army of the Dead
The Passing of the Grey Company wrote:
‘“But the oath that they broke was to fight against Sauron, and they must fight therefore, if they are to fulfill it. For at Erech there stands yet a black stone that was brought, it was said, from Númenor by Isildur; and it was set upon a hill, and upon it the King of the Mountains swore allegiance to him in the beginning of the realm of Gondor. But when Sauron returned and grew in might again, Isildur summoned the Men of the Mountains to fulfil their oath, and they would not: for they had worshipped Sauron in the Dark Years.
Then Isildur said to their king: ‘Thou shalt be the last king. And if the West prove mightier than thy Black Master, this curse I lay upon thee and thy folk: to rest never until your oath is fulfilled. For this war will last through years uncounted, and you shall be summoned once again ere the end.’ And they fled before the wrath of Isildur, and did not dare to go forth to war on Sauron’s part; and they hid themselves in secret places in the mountains and had no dealings with other men, but slowly dwindled in the barren hills. And the terror of the Sleepless Dead lies about the Hill of Erech and all places where that people lingered. But that way I must go, since there are none living to help me.”’
For those who've been living under a rock, the origin of the Dead Men being set-up. I've seen it hinted before that it was Ilúvatar himself that empowered the curse, since only he knows the fate of Men's souls or somesuch, but I haven't been able to find anything about that.
The Passing of the Grey Company wrote:
‘Aragorn had brought torches from Dunharrow, and now he went ahead bearing one aloft; and Elladan with another went at the rear, and Gimli, stumbling behind, strove to overtake him. He could see nothing but the dim flame of the torches; but if the company halted, there seemed an endless whisper of voices all about him, a murmur of words in no tongue that he had ever heard before.
Nothing assailed the company nor withstood their passage, and yet steadily fear grew on the Dwarf as he went on: most of all because he knew now that there could be no turning back; all the paths behind were thronged by an unseen host that followed in the dark.’
Spooooky....
The Passing of the Grey Company wrote:
‘Nonetheless [Gimli] drew near, and saw Aragorn kneeling, while Elladan held aloft both torches. Before him were the bones of a mighty man. He had been clad in mail, and still his harness lay there whole; for the cavern’s air was as dry as dust, and his hauberk was gilded. His belt was of gold and garnets, and rich with gold was the helm upon his bony head face downward on the floor. He had fallen near the far wall of the cave, as no could be seen, and before him stood a stony door closed fast: his finger-bones were still clawing at the cracks. A notched and broken sword lay by him, as if he had hewn at the rock in his last despair.’
The Company happens upon Baldor, the man who was to become the third King of Rohan if he hadn't been foolishly brave (or bravely foolish) to try and walk the Paths of the Dead. Tolkien goes into detail about what exactly happened in an issue of Vinyar Tengwar:
Quote:
"The special horror of the closed door before which the skeleton of Baldor was found was probably due to the fact that the door was the entrance to an evil temple hall [of the same Men of Darkness to which the Oathbreakers presumably belonged] to which Baldor had come, probably without opposition up to that point. But the door was shut in his face, and enemies that had followed him silently came up and broke his legs and left him to die in the darkness, unable to find any way out."
which indicates that the Dead
can interact with the living, violently. This however clashes with quotes further on.
The Passing of the Grey Company wrote:
‘“Keep your hoards and your secrets hidden in the Accursed Years! Speed only we ask. Let us pass, and then come! I summon you to the Stone of Erech!”
There was no answer, unless it were an utter silence more dreadful than the whispers before; and then a chill blast came in which the torches flickered and went out, and could not be rekindled. Of the time that followed, one hour or many, Gimli remembered little. The others pressed on, be he was ever hindmost, pursued by a groping horror that seemed always about to seize him; and a rumour came after him like the shadow-sound of many feet. He stumbled on until he was crawling like a beast on the ground and felt that he could endure no more: he must either find an ending and escape or run back in madness to meet the following fear.’
The Dead have the same wind machine designed to blow out lights that all undead seem to have

And Gimli starts losing it in the dark.
The Passing of the Grey Company wrote:
‘The Company now mounted again, and Gimli returned to Legolas. They rode in file, and evening came on and a deep blue dusk; and still fear pursued them. Legolas turning to speak to Gimli looked back and the Dwarf saw before his face the glitter in the Elf’s bright eyes. Behind them rode Elladan, last of the Company, but not the last of those that took the downward road.
“The Dead are following,” said Legolas. “I see shapes of Men and of horses, and pale banners like shreds of cloud, and spears like winter-thickets on a misty night. The Dead are following.”
“Yes, the Dead ride behind. They have been summoned,” said Elladan.’
"Bring out your dead..."
The Passing of the Grey Company wrote:
‘Long had the terror of the Dead lain upon [the Hill of Erech] and upon the empty fields about it. For upon the top stood a black stone, round as a great globe, the height of a man, though its half was buried in the ground. Unearthly it looked, as though it had fallen from the sky, as some believed; but those who remembered still the lore of Westernesse told that it had been brought out of the ruin of Númenor and there set by Isildur at his landing…
To that Stone the Company came and halted in the dead of night. Then Elrohir gave to Aragorn a silver horn, and he blew upon it; and it seemed to those that stood near that they heard a sound of answering horns, as if it was an echo in deep caves far away. No other sound they heard, and yet they were aware of a great host gathered all about the hill on which they stood; and a chill wind like the breath of ghosts came down from the mountains. But Aragorn dismounted, and standing by the Stone he cried in a great voice:
“Oathbreakers, why have ye come?”
And a voice was heard out of the night that answered him, as if from far away:
“To fulfill our oath and have peace.”
Then Aragorn said: “The hour is come at last. Now I go to Pelargir upon Anduin, and ye shall come after me. And when all this land is clean of the servants of Sauron, I will hold the oath fulfilled, and ye shall have peace and depart for ever. For I am Elessar, Isildur’s heir of Gondor.”’
The Dead can speak Common, and Aragorn lays down the ground rules of their deal.
The Last Debate wrote:
‘[Gimli] fell silent; but Pippin and Merry were so eager for news that at last Legolas said: “I will tell you enough for your peace; for I felt not the horror, and I feared not the shadows of Men, powerless and frail as I deemed them.”’
This quote however seems to clash against the idea that the Dead can affect the living, if Legolas is calling them 'powerless and frail.' Tolkien could've changed his mind about the Dead's interactions when he detailed the death of Baldor, or it could be Legolas is being arrogant and showing off in front of the hobbits how he's not scared of anything.

The Last Debate wrote:
‘“And lo! in the darkness of Mordor my hope rose; for in that gloom the Shadow host seemed to grow stronger and more terrible to look upon. Some I saw riding, some striding, yet all moving with the same great speed. Silent they were, but there was a gleam in their eyes. In the uplands of Lamedon they overtook our horses, and swept round us, and would have passed us by, if Aragorn had not forbidden them.”’
Self-explanatory, the AotD can move faster then horses easily.
The Last Debate wrote:
‘“For my part we heeded them not,” said Gimli; “for we came then at last upon battle in earnest. There are Pelargir lay the main fleet of Umbar, fifty great ships and smaller vessels beyond count. Many of those that we pursued had reached the havens before us, and brought their fear with them; and some of the ships had put off, seeking escape down the River or to reach the far shore; and many of the smaller craft were ablaze. But the Haradrim, being now driven to the brink, turned at bay, and they were fierce in despair; and they laughed when they looked on us, for they were a great army still.
But Aragorn halted and cried with a great voice: “Now come! By the Black Stone I call you!” And suddenly the Shadow Host that had hung back at the last came up like a grey tide, sweeping away all before it. Faint cries I heard, and dim horns blowing, and a murmur as of countless far voices: it was like an echo of some forgotten battle in the Dark Years long ago. Pale swords were drawn; but I know not whether their blades would still bite, for the Dead needed no longer any weapon but fear. None would withstand them.
To every ship they came that was drawn up, and then they passed over the water to those that were anchored; and all the mariners were filled with a madness of terror and leaped overboard, save the slaves chained to the oars. Reckless we rode among our fleeing foes, driving them like leaves…”
The quote does little to clear up the question of Dead physicality, since most of their enemies were fleeing before the Dead, nor does it chronical anyone besides the Grey Company killing the Haradrim and Corsairs. It does at least seem to prove PJ's interpretation that the Dead can 'float' as they pass easily over the water.
The Last Debate wrote:
‘“Then he let sound a great concourse of trumpets taken from the enemy; and the Shadow Host withdrew to the shore. There they stood silent, hardly to be seen, save for a red gleam in their eyes that caught the glare of the ships that were burning. And Aragorn spoke in a loud voice to the Dead Men, crying:
“Hear now the words of the Heir of Isildur! Your oath is fulfilled. Go back and trouble not the valleys ever again! Depart and be at rest!”
And thereupon the King of the Dead stood out before the host and broke his spear and cast it down. Then he bowed low and turned away; and swiftly the whole grey host drew off and vanished like a mist that is driven back by a sudden wind…”
And of course the controversial decision of Aragorn to dismiss the AotD; they don't even get used at the Pelennor Fields as in the movie. There are several explinations for why this happens though: one is that Aragorn somehow knew that the Dead would not be as effective against the main army as they were against the raiding forces. The Witch-King was in charge at Pelennor Field, and was known for commanding undead spirits, and maybe had some way of defeating the AotD with witchcraft. Perhaps, since Sauron was personally influencing his armies with sheer will power, that they would not be as easily scared away as the regular men. Or Aragorn didn't want to test the limits of Isildur's curse too far, and felt like being a nice guy. For whatever reason, he feels that they've done enough by freeing Pelargir and sets them free.