Chu Lip/WMG

The original residents of the Underground were escaped convicts.
At one point, the only place Underground was the jail in the graveyard. One day however, some convicts managed to escape, leaving behind a scrawling on the wall on how to initially escape the cell. Instead of returning to the surface (where they could be recognised and sent back to prison), the convicts tunneled, and built a community underground. Now the Underground Residents are the descendants of those convicts, but their forefathers wariness of the surace reamins - hence why the Residents will only come above ground for a short time each day.

Long Life Town sits on the same kind of reality warping stuff as Silent Hill
It took the protagonists' anxieties about fitting in and turned it into an increasingly bizarre game where he has to kiss everyone and everything in order to gain popularity. That final descent to mail the letter into the love interest's heart is also very reminiscent of James' trip into the Historical Society.