On Sunday, I went to see Journey Into The West: Concurring the Demons. Which is a great movie. Very funny. The basic plot, a young Buddhist Demon Hunter tries to convert demons, rather than slay them like other demon hunters.
The demons he faces in the story, are all people who have had horrible deaths/life experiences. The River Demon was set upon by villagers who mistook his actions to save a girl as trying to kidnap her. They beat him to death and hacked his body apart and threw it in the river.
The Pig Demon, his wife betrayed him and he vowed to take revenge on all women who looked only at the physical aspects of men, and all beautiful men.
I have always like the idea that monsters come from us, and not some outside world/plain of existence. The background story of Freddy Kruger, or Jason are great modern examples of this kind of monster.
The idea that we create our own monsters or demons out of our actions towards each other is what true horror stories are made of, for me.
The demon within is often ourselves.