Each Elder Scrolls game involves a Hero. The ones that charge (or sneak) in and save the world or a select corner of it from whatever menace is threatening it in that particular game. But their roles are a bit more pivotal than just doing that. They are typically not just saving the world, but also making a choice to do so. Add to this the notion that the Hero always starts each game as a Prisoner, and you have some interesting implications.
The Mythic Power of the Prisoner, and the Endeavour
When Lorkhan planned to create Mundus, it's possible that he did so to force limitations on the spirits of the world so that they can transcend them. Someone who has never known limit, like the unbound et'ada, cannot overcome them, and therefore cannot transcend their current state. This is the heart of the Psijic Endeavour, and what Boethiah and Mephala appeared to be aiming at when they led Veloth and the Chimer away from Summerset Isle to Dwemereth. It is also at the heart of what the Prisoner is; the Hero begins in a state of limitation, and can therefore transcend those limits in whatever situation they find themselves in.
It is also possible that, as a part of this process, the Prisoner goes on a journey of self-actualisation, and self-realisation, which the Prisoner is themselves entirely responsible for. The path they choose to walk becomes both subjective and objective, as they are making their own future and in the process defining it for others while reaching something that is inherently of themselves. They make the choice to become the Hero, to play the role, and make further choices that shape the Event itself as they see fit.
The Role of the Hero, or the Observer
The Event Arctus talks about is the resolution of a situation one way or another. Whether in success or failure, a Hero determines the course of a situation. This is akin to collapsing the waveform in quantum mechanics, where the act of observing an unresolved eigenstates reduces it down to one. An endeavour (to take over the world, say) has not succeeded or failed until it has been challenged, an the Hero plays a distinct part in this process. That is the observer in an enantiomorph, which forms the core of each Elder Scrolls game. In the later games, with the Prophecies being recounted in actual Elder Scrolls, the Hero is doing this very literally by resolving the infinite possibilities of the Scroll into one set of defined events.
The Prisoner's Transformation
Having been limited as a Prisoner and thereby aware of the impacts of a choice (meaningless to a being who has no limits, and can thereby "choose" everything and nothing all at once), the Hero is in an ideal place to choose between the possibilities presented to them and impose that truth on reality in a meaningful way.
It is making that choice that changes the Prisoner into the Hero. Choosing to limit reality and perform the main quest (something the games make starker by making each main quest an entirely optional thing in the main games) is to step into that mythic role. The Nerevarine is the one who wears Moon-and-Star and defeats Dagoth Ur, regardless of whether they were actually chosen by Azura or not. The Champion of Cyrodiil is the one who closes the Oblivion Gates and ensures that Martin defeats Mehrunes Dagon. The Last Dragonborn is the one who defeats Alduin, etc etc. Performing the role makes you that person, in a process that feels like mantling, but of archetypes rather than divine entities. It also means that the role can be filled by anyone, a key point in Elder Scrolls games.