My view on demons is that they are sort of "pools" or collections of negative energy formed by groups of people channeling fear or hate of suffering into a single place, that becomes sort of its own entity.
I like your point of view because it seems similar to mine.
I think that the demons would actually be avatars or people who embody the sort of emotional concepts we all associate with 'bad' states of mind.
For example, take the concept of 'anger'. Of course it persists through time and of course it can grant great power to people, as well as pleasure and devotion. And it makes demands and has consequences that aren't immediately apparent, everything from increased strain on your circulatory system to reactions from other people that you don't think about.
Now a person could conceivably focus on anger as
the motive force in their life, and become an avatar of anger, or a sort of demon. If the person saw everything in terms of how it made them angry, and anger was the fundamental tool they used to interact with every aspect of their life, no doubt that person would be on a different plane than the average you or me, and their anger would open many doors in life that remain closed to us, while making demands that we never have to answer to.
Whats more, just about every emotion or human proclivity can grant similar boons. Things like lust you can probably imagine easily, and when people devote themselves to a 'good' force, like for instance curiosity, they often become known across the world.
I think the concept I just illustrated answers for every aspect of demons in folklore. They're only drawn like they are and represented as incomprehensible or magically outside everyday experience because thats how we communicate about things, with exaggeration of relevant aspects etc. They aren't always bad, and people can benefit from fucking around with them, although there are definitely dangers.
Furthermore, I think that anyone who has met a large number of people has encountered those who through some extreme exaggeration of some emotional trait have become a demon, not necessarily hostile to
you, but outside the realm of 'normal', and quite possibly hostile to some people.
And when you think about what can happen when someone who leans in a direction we think of as 'sick' acquires a position of power, like a psychiatrist or hitler in the worst case, they really do create a wound in humanity, and fuck with and destroy people. However I don't think that their power exists outside of the human mind, where it can propagate indefinitely, but not like in the house of usher or whatever.