The Gospel Preached to the Dead - D&C 138:32-33

Thus was the gospel preached to those who had died in their sins, without a knowledge of the truth, or in transgression, having rejected the prophets. These were taught faith in God, repentance from sin, vicarious baptism for the remission of sins, the gift of the Holy Ghost by the laying on of hands, And all other principles of the gospel that were necessary for them to know in order to qualify themselves that they might be judged according to men in the flesh, but live according to God in the spirit.

This passage comes from Joseph F. Smith's revelation concerning the spreading of the gospel among the dead. This revelation amplifies Peter's statements about the dead receiving the gospel via Christ's organized messengers in heaven.

For Christ also hath once suffered for sins, the just for the unjust, that he might bring us to God, being put to death in the flesh, but quickened by the Spirit: By which also he went and preached unto the spirits in prison; Which sometime were disobedient, when once the longsuffering of God waited in the days of Noah, while the ark was a preparing, wherein few, that is, eight souls were saved by water. ... for this cause was the gospel preached also to them that are dead, that they might be judged according to men in the flesh, but live according to God in the spirit. (1 Peter 3:18-20,4:6)

Now a quick word on the meaning of "prison" which is used here. The early saints did believe in an intermittent state of man in which he was to await final judgment. It is referred to as Sheol in Hebrew - a place of darkness separated from God in which the dead await judgment. There is a section of Sheol sometimes referred to as the Bosom (or lap) of Abraham and as the refrigerium by early doctors of the church which is a place where the righteous await judgment in paradise and peacefulness as opposed to prison, where there is only darkness.

Judgment comes before the resurrection where we will all receive a body. However, what kind of body we receive depends on our willingness to repent. Paul described the difference between a natural body and a resurrected one, and that resurrected  bodies are different types of bodies with differing levels of glory. These are what we will receive at the resurrection:

... How are the dead raised up? and with what body do they come?

All flesh is not the same flesh ... There are also celestial bodies, and bodies terrestrial: but the glory of the celestial is one, and the glory of the terrestrial is another. There is one glory of the sun, and another glory of the moon, and another glory of the stars: for one star differeth from another star in glory.

So also is the resurrection of the dead. It is sown in corruption; it is raised in incorruption: It is sown in dishonour; it is raised in glory: it is sown in weakness; it is raised in power: It is sown a natural body; it is raised a spiritual body. (1 Corinthians 15:35,39-44)

So the judgment determines the type of our final resurrection and  corresponding endowment of glory. Note that I said that the judgment is based on our willingness to repent. Many have the notion that the final judgment is based on the sum-total of our deeds in this life. I believe this is only partially true. Our thoughts, words and actions are a manifestation of who we really are (Mosiah 4:30). They are the evidence with which we are ultimately convicted or exonerated at the final judgment.

So, in the end it is about what we become, our total character and makeup. It is not about a sum-total of our good deeds and mistakes, it is about our core motivations, desires and level of self discipline. Thus repentance is a very difficult thing. It's not just about saying "I'm sorry". It is about a real change of heart; self betterment. This usually takes a lot of time and perseverance. Thus deathbed repentance is not possible.

... I beseech of you that ye do not procrastinate the day of your repentance until the end; for after this day of life, which is given us to prepare for eternity, behold, if we do not improve our time while in this life, then cometh the night of darkness wherein there can be no labor performed. Ye cannot say, when ye are brought to that awful crisis, that I will repent, that I will return to my God. Nay, ye cannot say this; for that same spirit which doth possess your bodies at the time that ye go out of this life, that same spirit will have power to possess your body in that eternal world. For behold, if ye have procrastinated the day of your repentance even until death, behold, ye have become subjected to the spirit of the devil, and he doth seal you his. ... (Alma 34:33-35)

Then if our hearts have been hardened, yea, if we have hardened our hearts against the word, insomuch that it has not been found in us, then will our state be awful, for then we shall be condemned. For our words will condemn us, yea, all our works will condemn us; we shall not be found spotless; and our thoughts will also condemn us; and in this awful state we shall not dare to look up to our God; and we would fain be glad if we could command the rocks and the mountains to fall upon us to hide us from his presence. But this cannot be; we must come forth and stand before him in his glory, and in his power, and in his might, majesty, and dominion, and acknowledge to our everlasting shame that all his judgments are just; that he is just in all his works, and that he is merciful unto the children of men, and that he has all power to save every man that believeth on his name and bringeth forth fruit meet for repentance. (Alma 12:13-15)

All will be resurrected to the glory they deserve. We are told that even the wicked will be resurrected. However they will be resurrected exactly as they are - in misery.

Do not suppose, because it has been spoken concerning restoration, that ye shall be restored from sin to happiness. Behold, I say unto you, wickedness never was happiness. ... all men that are in ... a carnal state, are in the gall of bitterness and in the bonds of iniquity; they are without God in the world, and they have gone contrary to the nature of God; therefore, they are in a state contrary to the nature of happiness. And now behold, is the meaning of the word restoration to take a thing of a natural state and place it in an unnatural state, or to place it in a state opposite to its nature? ... this is not the case; but the meaning of the word restoration is to bring back again evil for evil, or carnal for carnal, or devilish for devilish—good for that which is good; righteous for that which is righteous; just for that which is just; merciful for that which is merciful. ... therefore, the word restoration more fully condemneth the sinner, and justifieth him not at all. (Alma 41:10-15)

Now we come around full circle. What has this got to do with faith, and the preaching of the gospel to the dead?

We know that faith in Jesus Christ is the first step toward repentance. Without a knowledge of Him and His sacrifice, there is no faith. Once we have this knowledge, if we let it stir our souls and change our desires, we can start exercising faith and it will begin to grow. Thus we start a process of development and progression toward the devine through the merits and mercy of Christ.

In the case of the dead, there are many valiant who, had they only the opportunity in this life to receive and understand this knowledge, would have fully repented and received a glorious resurrection.

All who have died without a knowledge of this gospel, who would have received it if they had been permitted to tarry, shall be heirs of the celestial kingdom of God; Also all that shall die henceforth without a knowledge of it, who would have received it with all their hearts, shall be heirs of that kingdom; For I, the Lord, will judge all men according to their works, according to the desire of their hearts. (D&C 137:7-9)

Thus we see the necessity of the gospel being preached to the dead.