>>723594062
The lore as of Sh2 is that the town seems to leave echos of its horrifying past which can come back in the fog world. As such, the prisoner enemies are echos of the prisoners from the penal colony days, as well as psych ward guys. It's the history of the town + James pscyhe that created "Pyramid head". But the red creature pre-exists and probably haunts others, just manifests a little differently.
The story plan seems to be to have Silent hill as a place with a lot of spooky events in the past, and furthre games were going to explore this. But Sh2 didn't sell well, so it quickly became a rushed budget series, and any plans didn't come to fruition. It's why SH3 is a sequel to 1 and they made a game per year after that.