Under all their compulsive lying about their place of origin and what they are, there is some truth: they used to be human. They mentioned this exactly once, after reading Sebastian’s document, and immediately backpedaled, never bringing it up again. It probably weren’t created/modified on the Blacksite, but we can’t deny the possibility of Urbanshade meddling entirely. They have a track record of needlessly modifying living things, and also human sacrifice, and also the game is literally about them being evil.

Buggy’s loss of humanity is most likely tied to a crime they committed in their past. The “commandeered a submarine” story is mostly false, but like most things, there is some truth to it. That’s the Buggy way of saying it tried to escape from someone/somewhere and failed.

Buggy gets nervous when doing any kind of injectable, which means they were probably stabbed with needles as part of their transformation. Or they just don’t like needles. It’s hard to tell what’s lore relevant and what’s it being weird.

Figuring out exactly what happened to them is hard because it’s not obvious what they're supposed to be. What animal is that? Good luck finding out. It’s green, apparently mouthless, and cold to the touch. It’s most likely because they escaped from whatever was doing this to them before the process could be completed.