You come across various hints to Walter's character throughout the game-who is he and what monstrous hold does he have on the events in The Room? Is he the cause? 

SPOILER ALERT!!

Walter was infact born in Room 302 but immediately after his parents abandoned him there where he was found and taken to the orphanage (The Wish House). Here he was told that he was born in Room 302 and belived that the Room it self was indeed his mother. As he grew older,Walter made frequent trips back to the Room- where he tried to see his "mother" but always failed to do so- refer to the first piece of paper Henry picks up at the beginning of the game.

At the Wish House,Walter came under the influence of "The Sect" from Silent Hill whereby he believed that if he brought about the 21 Sacrements his mother would be reborn and they would be reunited. To this end Walter embarked on a murder spree carving the number of the murder number and Sacremant number on the victim. These "Victims" appear throughout the game attempting to thwart Henry.

The authouroties believed they had captured Walter but the murders have started again at the same time Henry is lost in the nightmare.These are the characters Henry meets throughout the game.The 20th and 21st Sacrements are meant to be Eileen and Henry!