[Warning: The following contains spoilers for the latest episode of Castle Rock, "The Word". Read at your own risk!]
Castle Rock is an anthology series set in an interconnected universe with deep mythology, and the seventh episode of Season 2, "The Word," showed just how connected it really is, with the return of Season 1's antagonist, the Kid (Bill Skarsgård), aka the Other Henry Deaver, aka the Angel. The episode revealed a different origin story for the Kid than the one given in Season 1, and may be finally setting up the explanation for who the Kid is that Season 1 intentionally withheld.
If you recall in Season 1, the Kid said he was an alternate-universe version of Henry Deaver (Andre Holland) who got trapped in the wrong dimension, which is why bad things happened wherever he went, since he was basically an infection in reality. He tried to kill Henry at the cliff above Castle Lake where significant events happen, but Henry overpowered him and he briefly showed his true demonic form. After that, Henry locked the Kid back up in the cell in the basement of Shawshank Prison that Warden Lacy (Terry O'Quinn) kept him in, and the Kid sat there, waiting for something.
In "The Word," we found out what the Kid was waiting for: The return of his followers, since he really is some kind of devil. The episode flashed back to 1619, when French settlers in New Jerusalem -- what is now the Castle Rock/'Salem's Lot region -- were struggling to survive in a barren, inhospitable climate. Amity (Mathilde Dehaye), the daughter of the community's leader, questioned her father's leadership in front of everyone, and he cast her and her lover, the priest (David Alpay), out into the wilderness. She met the Kid/the Angel at the cliff above Castle Lake, and he magically made the settlement's gardens fertile. Amity turned the community against her father, who she burned on an upside-down cross, and converted them to worshipping the Angel, with a statue in his image.
The Angel demands blood sacrifice, and told Amity to kill her own people, seemingly hypnotizing her into doing it with the insects he controls. She carried out his instruction and led a mass suicide of her people, vowing that they would come back in 400 years in new "vessels" into a "new world to conquer."
Flash-forward to the present and Amity's prophecy is coming true. When Annie Wilkes (Lizzy Caplan) killed Ace Merrill (Paul Sparks), she buried him on the site of the cult's mass grave, and the spirit of the priest, Amity's lover, has taken residence in his body. The people Ace has been killing and resurrecting are now possessed by the spirits of the other followers of the Angel, and Annie is to be the vessel for Amity's spirit. And now that Ace/the priest has hypnotized most of the town with a statue of the Angel, it seems like only a matter of time before Amity and the Kid return, unless Pop (Tim Robbins) and his family can stop Ace.
You may not remember, but we actually saw Amity in Season 1. She appeared in Henry's visions triggered by exposure to the Schisma, the sound of the universe trying to reconcile all possible timelines. Mathilde Dehaye was credited in three episodes but only really appeared in Episode 9, in a vision of Amity young Henry had when he was in the woods near the cliff above Castle Lake where the boundary between realities is thin. Amity didn't say anything, but she was holding a bloody knife. It was totally unclear who she was then, or even that she had any significance beyond showing that the woods around Castle Rock have many troubled spirits trapped in them -- in that vision in Season 1, we saw a young woman in '70s clothes slitting her wrist against a tree, as well as escapees from a Depression-era chain gang -- but in retrospect it was the show setting up what was to come in Season 2.
There's a lot we still don't know. We don't know what the Kid/Angel actually is. His appearance as a bug god in 1619 does make his Season 1 claim that he's an alternate-universe Henry Deaver seem like a lie, though, or at least not the only explanation. And we don't know where he is now, since Ace went down to the cage and found it empty but locked with clothes still inside. Before she was ritually murdered, Amity told the priest to find the Angel, which is something that still needs to happen.
We don't know where Henry Deaver is now, either. Season 2 takes place not long after Season 1, so there's a chance Henry is still in town.
So what's really going on? For an idea, we should look to 'Salem's Lot. In that novel, an ancient vampire named Kurt Barlow turned many of the people in town into his vampiric minions. What's happening on Castle Rock is pretty similar. Barlow's base of operations was the Marsten House, which is also Ace's base. The Kid/the Angel/whoever he is might be this corner of the Stephen King multiverse's version of Barlow.
Castle Rock is available to stream on Hulu.