The Ugly Barnacle actually happened within the universe of SpongeBob SquarePants
There
was an ugly barnacle, and it did kill an underwater civilization of men and merpeople. The only survivors were either gods (Neptune) or superheroes (Mermaid Man and Barnacle Boy). Yes, yes, this inspired Atlantis. The underwater dead became so infected and mutated by the fallout of ugly that they spontaneously resurrected and became sentient. Yes, yes, Bikini Bottom is just like a past-Zombie Apocalypse civilization. And that is why Spongebob sometimes looks like an Eldritch Abomination.
- Jossed, because everyone died.
Not necessarily. "Everyone" could refer to everyone in a specific REGION, and it may not affect Bikini Bottom.
- And indeed, that's what it is in the 2014 film.
- Furthermore, even if everyone dies, who says they have to stay dead?
Just got an idea from that - the residents who died from the barnacle's ugliness died, and then they, through some process, came back to life as a form of zombie. Over time, they became the citizens of Rock Bottom.
- The souls of the (humanesque) residents possessed the fauna. This explains how Mr. Krabs "sired" Pearl: they were father and daughter in the past life.
[*]Alternately, we're looking at their afterlife.