The Grim Reaper, because of its job and skeletal composure, is considered a magical being. The current Grim Reaper, Marty, constantly wears a black robe and hood with a belt made of bones attached to his waist. His job is to take souls away and deliver them to Hades. He is only seen in Season 2, in "Family Business".
Despite popular belief, Grim Reapers are not necessarily evil. Marty, for example, is actually quite the prankster and enjoys playing jokes on others. In the magical world, Grim Reapers are not looked upon negatively since they are not the ones who cause death, but rather act like guides for lost souls.
Grim Reapers have the ability to sense every single soul on Earth that is in mortal danger. However, that doesn't mean they get the call whether a person lives or dies. They can find these endangered souls by using an enchanted compass that will point to the nearest soul in dire peril.
Though this is never actually seen or mentioned, it is presumed that the scythe the Grim Reaper carries around is used to sever the souls of the dead from their bodies. Once separated, the soul is then able to roam free, although the Grim Reaper is there to make sure it gets to its final destination without a hitch.
In order for someone to become Grim Reaper, they must first tap out the one that is currently filling that role. Once the former Grim Reaper steps down, the new one is free to take the job. It is unclear whether the former Grim Reaper actually has to be killed or just laid down in order to be replaced.