The Shinigami
Urahara is the former captain of the 12th Division of the Gotei 13 in Soul Society. His vice-captain/lieutenant was Sarugaki Hiyori. He was originally the 3rd seated officer of the 2nd Division under Shihouin Yoruichi and headed the Supervision/Detention/?? Unit before being recommended to replace the 12th Division captain who was promoted to the Royal Guard. Not much is known about his time in Soul Society but by other shinigami's reaction to his name alone is a clear clue that Urahara was a respected shinigami. This could also mean that for the last 100 years, by word of mouth about the former captain, Urahara has left behind an intimidating impression of sorts on the younger shinigami. Urahara was also the founder and president of the Research Institute of Technology. Here Kurotsuchi Mayuri, the current 12th Division Captain, succeeded him here also.
Exile
Urahara is an intelligent man and an exceptional inventor but unfortunately it was one of his inventions that led to his exile 100 years ago. Urahara created a special and dangerous gigai, an artificial body which shinigami can use in the human world. This gigai was completely undetectable. More importantly, it devoured the spiritual power of the shinigami. By using the gigai, the shinigami would would never recover their power, their coordination with the gigai diminishes and the konpaku (soul) eventually becomes powerless.
Hou Gyoku
Urahara also created another dangerous mechanism. This was called Hou Gyoku. Hou Gyoku is a mechanism that could transform a hollow into a shinigami and a shinigami into a hollow. Every shinigami has their limit that can't be passed but there was one way to surpass it and that was to become a hollow. Urahara knew that Hou Gyoku was dangerous, especially if the wrong person found out about it so he tried to destroy it. Unfortunately, he found no way to destroy it so he instead put a barrier around it and buried it in a konpaku to try and conceal its location. It All Comes Together
The konpaku Urahara decided to conceal the Hou Gyoku was Kuchiki Rukia. Urahara, finding Rukia after she gave her shinigami powers to Ichigo, offered her one of his gigai. The gigai just happens to be one of the special ones that eats her remaining powers. It seems that Urahara is trying to hide Rukia from Soul Society's detection since she is the carrier of his dangerous creation.


