Maybe he was some kind of priest that went insane? We can see him wearing the typical Mortician tools under his coat, but... did you look at his face?  On the other hand, Scalpel's not really a Mortician, too, exceptfor her Playstyle.  Let's put the morbid to another Level. He was tasked with preparing the corpses of children, but he couldn't bear it. He cut away the flesh around his skin so he wears an eternal smile, something he has in common with the dead children. The puppet is a Symbol of his work, grim to look upon, made from the bones of the last child he worked on, sending shivers down everyones spine he throws it at, sharing a fraction of the pain and insanity he internalized over the many years.