How do souls evolve?

Spirit, nor soul, can ever be evoluted from matter. Spirit is spirit forever. Soul is soul forever. Matter is matter forever. A thing cannot be evolved from that which does not possess it.

Mr Darwin has told you that races of men, also different species of animals, do not run into each other, and I will here state the reason why they do not. 

All nations are graded and exist as nations—distinct nations in the germinal state, in the soul-germinal state—and when a nation has reached the development, which Nature designed for it, it disappears—or dies out—and so on of all species of animal, insect and reptile life—so of all vegetable and floral life. 

When the earth has no further need of horses they will cease to exist or die out—and so of all other animals—and as the ages roll on, man himself will also disappear from the earth—but all these things, together with man, will be simply moved onward and upward into a higher state and condition.

—Herr Franz in Spirit