Spoilers below. I've made a few minor adjustments and cleared up some information. This should be the last update!
Caius tells Lightning at the start of XIII-2 that "oblivion is the fate of all things". What does he do at the end of Lightning Returns? Faces his fate and fades into oblivion. With the last expression we see from him being heartbroken, determined, and completely at peace all at the same time. He accepts his fate of oblivion and lets Noel go into the new world, someplace he just can't go, with Yeul. Oh, and you know how on Tumblr there was the thing about "cause of death: Lightning's smile"? Well, in my case, the cause of death for my feels was the fact that... Caius smiles. Very slightly, very softly, very sadly, but he freaking smiles for the first time in the trilogy just before he tells Noel off one last time and lets him go with Yeul. And it is BEAUTIFUL.
And why is that? Because he's, ultimately, a tragic character.
Not a monster. Not a villain. A man. A tragic character who doesn't even get his chance to be at peace, trapped for eternity with the Yeuls who are responsible for him being such a mess to begin with, and he might eventually lost with the Chaos in the Unseen Realm, since he's literally a part of it (having been resurrected by Yeul to begin with). However, in the montage of Lightning's memories, he's there with all the other major characters. Not with any villains (who are not shown at all), but with the heroes. Lightning remembers him. He's in her memories, where he belongs. Not forgotten. Not as the monster he was, but right there in her memories with her companions and the heroes and Yeul. Despite the game's canon ending, he is not forgotten. Even though she goes to... apparently France, she remembers everything that happened, which means she remembers Caius Ballad too.
I'm still not okay.
He's one of my all-time favorite characters now, not even kidding. He went from what seemed to be an irredeemable villain to a broken man accepting his fate in this last game. I don't like the ending all that much, but his part, though I don't know Japanese beyond a few minor words, was the best for me. And I have never ever believed in my OTP more than I do now. No matter what, you know me - I'll find a way to keep writing about them. I want to do it for a long time to come. I don't follow them because they look good together or any other reason like that, but because of their raw characters and how they mesh. Caius is ridiculously attractive, but he fascinates me, too. I'll miss him as much as, if not more than, the others of the trilogy.
You can see that smile of his in this video from 13:28 to 13:32. Be sure to see it in HD. Try not to feel all heartbroken again. You can also read the translation of his scene with Lightning here on Tumblr. Bring tissues, because Yeul is responsible for him being trapped in Nova Chrysalia. Her feelings for him birthed so much chaos that it became powerful enough to drag Lightning into Valhalla and rip apart the timeline, permanently. He can't leave because not only can he not be reborn (because of how chaos has eroded him), but Yeul doesn't want to exist without him. He stays because she can't let him go, and because the chaos has destroyed him. Congratulations, Square, you have officially destroyed my heart over a fictional character.
And the ending? He becomes an entity of the chaos, a part of the Unseen World, left to become one with the Chaos while Yeul takes up the mantle of the new Etro. Trapped with Yeul for all eternity. He isn't dead, but he may as well be. I don't think he wants to be there. I think he wanted to go to the new world. Instead, he still isn't allowed to die. I think I misread the translation the first time, because it actually appears that Caius is consumed to become one with the Chaos while Yeul and her incarnations take Etro's place (as opposed to both of them working together). You can read the ending cutscene translation by clicking here.
Caius was as much cheated out of everything as anyone else, and unlike Lightning and the others, he doesn't ever get a second chance.
SOMEBODY PLEASE HOLD ME.
Between this and my Halo 3 ending/Halo 4 ending/Halo (Xbox One) teaser feels, as well as real-life stuff... I'm a mess. That I keep listening to the song linked below doesn't help at all.
I am close to the point where I can begin writing my Lightning Returns AU, and I plan on drawing a poster for the story in the interim. The story itself won't be posted before February, so I can make sure I have the whole story and all the details first, so that will give me time to finish Hearts in Chaos. Thanks for your patience!