My Theory:

For the curse to be completed the original villagers sacrificed their children. However not all children were sacrificed... specifically the original children connected to Tabitha and Jade (I’m not sure of their original names). Because of this the curse was never fully completed. Since one child was not sacrificed a flaw occurred in the curse. As a result, the villagers turned into monsters, and the town became trapped in an endless loop repeating over and over until the final child is sacrificed. Because of this the original villagers keep returning in different forms or cycles, trying to capture the last remaining child. But they always fail either because they cannot find the real child or because they target the wrong one. The true original child is Thomas. However every time he is born he dies again and becomes trapped in another time or place. During the massacre that Victor witnessed they took his sister believing she was the final child needed for the sacrifice. That’s why there is no trace of her. But she was not the real final child so the curse did not activate. I believe one of the conditions of the curse is that the sacrificed child must carry the spirit of the original child of the village. There is also a strong possibility that Julie is the one who saved the last child from the original sacrifice by traveling through time. That’s why the Man in Yellow recognizes her because she interfered with the curse and possibly took the child to another time. Ethan is not the final child. He is the brother of the real child Thomas. Thomas is the Boy in White, trapped in another timeline within the town. He appears in Ethan’s dreams, showing him things in the form of stories to warn him and guide him. However Ethan does not remember all of his dreams. The town believed Ethan was the final child, which is why it manipulated Sara to try to kill him. They thought his soul had returned. But the real child’s soul does not return to the town it exists in another time. The Man in Yellow is responsible for triggering massacres to restart the cycle of the town. This happens when a child grows older because the curse requires a sacrifice at a specific age. This also explains why the Boy in White changes and says that “time is running out” The Lake of Tears is a place filled with the memories and spirits of those who died in the town ..like Jim That’s why he told Ethan to look for it. It may be the true way out of the town but it is guarded by giant spiders. In the end I believe the only ones who will escape are Ethan and Julie And another person with them.