The Palace of Twilight is where Icy and the shadow beasts live.
The Palace of Twilight is where Zant formerly called home. After his death, Icy took over and ran the place. It looks exactly like Hyrule Castle, but Twilight surrounds it. The Twilight here is so strong, that it can sometimes force Link to turn into a wolf against his will. Sometimes, but extremely rarely, it causes other people to transform into ghosts while they are in the twilight.
The only way the palace can be damaged is with the power of the "Sols" which are imbedded inside the Master Sword.