So I'm a relatively new DM (about a year and a half DM) and I've taken on the task of creating the ultimate most serious campaign I've ever DMd. The whole idea of the campaign started around the thought that the game should be centered around Night Walkers. From there it grew from the idea that a little after a 1000 years of peace, Pale Night once again is trying to release her army of warforged soldiers, housing the souls of the dead, to take over the world. This would otherwise be impossible without outside help. The 9 archangels of this world sealed all access to the lower planes from anywhere but Elysium. A cult is trying to reopen a gate to release Pale Night's army. This is going to happen on a small island with only one city. That city is encased in walls to protect it from the monsters lurking there from before recorded history (this will later be revealed to the players. Before recorded time there was a great war between the upper and lower planes that destroyed most of humanity). 

This is where things get tricky. All of my players are on this island waiting for a ship to take them somewhere else. While they are there, I want there to be a series of events that lead up to the ultimate destruction of the city, leaving no one alive but the party. They eventually escape on a ship that leaves immediately upon realizing the city is destroyed. At first I thought the cult would open a portal to the shadowfell, releasing a wave of night walkers, killing everyone in the city without destroying a single thing. Another idea I had was that an ancient race of demon would be released that completely obliterates the city. Since everyone is first lvl I want them to feel like this is completely out of their hands. And since this is also a horror campaign, I want them to think something is off. Like everything is going really well except it seems to well. For this I thought the cult could put the whole town under a spell to make them hallucinate while they do their work but it seemed a little too far fetched. I want to occupy my party with tasks around the city that have nothing to do with the destruction of the city but leave hints that something very wrong is happening here. Theres also a local church on the Isle which I thought might try to seek out and stop the cult since that religion in particular is very powerful. Any ideas?

Edit: I forgot to mention that one of my players is a warforged soldier of pale night with some pretty bad memory loss. They happen to be carrying some bags that won't open, which I happened to place in their possession incase I decided to do something with them plot wise. Thanks to everyone thats responded! Its a big help. 

Based on what you've said I'd go for something like the Dragonborn DLC for the Elder Scrolls Skyrim.

Effectively you have a uber mage trapped on another plane who possesses people on the material plane whilst they sleep and forces them to rebuild various temples and magical sites. When the people wake up they have little to no memory of events. When the magical sites and temples are rebuilt the mage will planeshift the town into the shadowfell which then opens up a rift or gateway to allow free travel between the two planes. There are a few people in town who are immune to the effect, so in your setting this could be the party and an NPC to act as their advisor on events and possible moves their operation onto a ship for saftey. If the party try to disrupt one of the sites people are working at then you can have some entity from the shadowfell appear and attempt to drive them off, something small such as a Shadow with some Smoke Mephits reflavoured to be undead "Shadow" Mephits instead of elementals, could be a challenge for level 1 characters.

You can then build the intiital few sessions to escape the town and potentially help some townsfolk escape and maybe leave clues that the cult have also sent operatives to another city in the hopes of repeating what they did. The NPC and the party then work together to find those operatives and put a stop to it.

You can have them go on adventures to locate long forgotten temples and find artifacts such as the Black Books from the Dragonborn DLC which enable the party to travel to the Shadowfell, gather resources and information and potentially give them special abilities.

You've got a lot of ideas floating around at once, and for new DMs, juggling all of it can be overwhelming.  I'm not saying don't do it, I'm saying temper it and don't be afraid to backtrack if you find yourself stretched thin.

From a narrative point of view, there seems to be a few conflicting to points when I read it.  If this city is shielded to protect it from unnamed horrors, everyone there would know it.  They might not know the full extent, but they would definitely know local myths and legends.  The party is naturally going to want to investigate the big plot hook, and busying them with side quests might feel tedious, even with sprinkles of plot.  If the cult is so powerful that they were able to do this, they would have already stopped or dealt with this church.  If the players aren't from this city, why would they come to this forbidden island?

 I, Spidey, would caution against the "leave the city untampered", because the players are going to expect there to be free loot.  

I think anything dealing with cultists, shadowfell, ritual magic is solid.  Just requires a lot of investment.  Maybe the party is just investigating a disappearence, and they happen into the ritual chamber where the final rites are being committed.  Chamber is shielded from its own effect, but every cultist inside is used as a catalyst to invoke it.  Gives you the ability to use some horror tropes like self-sacrifice, and then when they walk out it's the empty city, but you hear growls or things tearing at your mind.  They get out and theres a church there....but it wasn't there before....was it?  No one really remembers right or they all have conflicting memories due to the side effects of the ritual playing mindgames with them.  When they go to try and see if the person who gave them their quest is there, its just an altered human of your choice in terms of disfiguration.  That would be my opening premise, but at the end it's your game.  

I would just think of it in a way of "If this, then that", and remember as a DM that just because the party doesn't walk to the plot doesn't mean the plot isn't there.  If you had intended the ritual chamber to be under this inns basement, but they end up at a random shop?  Guess its there now.  

Seems to me you could have them investigating some typical Lvl 1 activities.  Something was stolen from the local church, temple, library, etc.  Maybe an old book, which they learn is written in an ancient language that no one can read, and even with comprehend languages, the code the book is in is beyond them. .. Maybe a visitor coming in on a ship is a scholar from someplace else and they are hired to investigate his disappearance.  They find is body, but something looks off - this wasn't just a murder or robbery gone bad. Maybe the scholar was one who could break the code?

The side quests lead them into the knowledge of the cult, who have started the ritual.  Let them see the opening to this other portal. Scare the crap out of them with guards sacrificing themselves and turning into horrific demons, undead, whatever you want.

To emphasize that they are way out of their league, you may have an NPC accompany them, who is far more powerful than they are.  NPC fights honorably. NPC gets smoked...  End result should be the party leaving on anything floating.  If any of them have sailing skills, maybe they jump onto a ship in the harbor and sail out of there, or if not, they manage to get on a ship as it is leaving.  Make their departure harrowing... the city is overrun and people are dying.

This could be a hook for the warforged soldier. The sight of the ritual maybe opened up some memories. The revelation of these memories could be a plot line for that player over several levels...

My question would be what the other powers in the area are doing about this?  What happens if the PCs go tell someone else about this?