As explained in my answer to Listings and Babel (with some languages) are breaking hyphenation, characters with a non zero \lccode are those that TeX considers as forming words, when hyphenation is tried.
Thus in
``the masters''
only the and masters are considered as words under normal settings, where ` and ' have zero \lccode. If
\lccode`\'=`\'
(which is equivalent to having 39 after =) is issued at the top level, the phrase above will have the “word”
masters''
and TeX will happily hyphenate it as
master-
s“
because this respects the rule that a hyphen must have at least three letters after it (in the English hyphenation rules there's \righthyphenmin=3) and the pattern aster5 in hyphen.tex makes this into a very good hyphenation point.
For this reason, characters with zero \lccode are not allowed in \hyphenation.
My advice is to use a macro for those apostrophes and something like
\documentclass{article}
\newcommand{\?}{'\-\nobreak\hspace{0pt}}
\hyphenation{the-mar thu-zad}
\begin{document}
\begin{minipage}{0pt}
and Lor\?themar felt that Kel\?Thuzad's controlled tone
\end{minipage}
\end{document}
where the zero width minipage is just to trigger as much hyphenation as possible.

Kel'\-Thu\-zadin running text to get the hyphenation you want. It's a bit tedious indeed … – Harald Hanche-Olsen Mar 11 '14 at 22:49\'=39 just before your\hyphenation` command, I believe it will not complain and it will do the trick. I also believe it will not break much in the rest of your text... – nickie Mar 11 '14 at 23:15\hyphenationwith an apostrophe, or just one time changes every\hyphenationfrom there on? – Alfredo Hernández Mar 11 '14 at 23:22