Demons:
What We know.
A long time ago, Demons ruled the Earth, which could have been the age of Dinosaurs. At some point, some group of TPTB began to drive them from this plane of existance. They slowly were pushed into their own infernal dimentions. Before they were banished completely, they created a series of demon/human hybrids, able to live in this dimention, but still looked human. The Final demon to dwell in this plane was the Sire of all Vampires.

Types of Demons:
Monsters: The typical things that go bump in the night. The growling, destroying stuff, type.

Mythological: Ones that serve a purpose in human society. Anyanka, for example.

Culture demons: Demons that just seem to be infernal versions of man.

One note about demons in our reality, according to Anya every demon in this realm is some sort of human-demon hybrid. That is why the mayor becoming a pure demon was a big deal. As far as the soul thing goals, that is a tough one I tend to think some types of demons have souls.

Vampires- I go back to when angel said the demon gets the body but not the soul apparently the soul is released into the afterlife, and the demon inhabits the body.

Well, which ones? Most demons seem to be "crush, kill, destroy" and nonsentiant. Also, why would immortal demons need souls? The only good demon would be Whistler, and his orgins are shouded in mystery.

Actually there are several good and neutral demons in the Buffy-verse, mostly on Angel. There is Lorne, the former Karaoke "Host." there is Skip who is basically Whistler's replacement. Doyle, who's mother was a demon and whose father was human is considered to be a demon.

And many demons are known to have souls. When Anya and Halfrek became vengenge/justice demons they retained their human souls, as did Cordelia when she became "demonized."

So, some demons have free will. And when humans become demons they keep their souls. So, here's the question, What does a soul do anyways?

in the buffyverse I believe the soul is what makes humans and some demons capable of doing good. I think it is more of a conscience.

Some more thoughts
Souls: Humans and Demons are two different creatures. Since Humans are going to die someday, they need something to survive into the afterlife. Demons, which are immortal, are probably more along the lines of "Spirit animating corporal bodies," and really don't have much of a physical body or a metaphysical soul e.g. the amount of damage a demon can take suggests their bodies aren't connected to their existance, and when a demon "dies" it's only because their existance is too painful to continue holding on too.

Demons are again, not human, and are going to be different than humans. While humans have free will, demons may not. Some may and some may not. And they may have it for different reasons than posession of a soul.

So if demons are good, it would be for reason different than having a "soul" in the sense a human has one.

Christian Demonlogy holds that Spirits are pure souls, while humans are body and soul. However, Buffy Demons are Lovecraftian, while the Vampires are descended from Bram Stroker, which is strongly Christian based. So essentially the problem is several different types of demonlogies tied toghether and aren't going to be internally consistant. It's borrowed materials, and can't be reconciled.