When an Undying enters the Underworld, they sometimes find things they got attached to, in a similar way wraiths sometimes take relics with them. A phylactery is something in the world of the living into which a mummy can bind the power of the underworld, quasi an earthly manifestation of a relic. The advantage is, that the Reborn can take the phylactery with him into the Underworld, but can use its power also in the Lands of the Living.
Mummies refer to phylacteries as Nefesh, as things that are whole in body and soul, similar to themselves.
Many phylacteries are former relics that were given to the Undying during their First Life and buried with them.