From my experience, a story is best left a bit vague, leaving some room for imagination to everyone in the audience. I like Silent Hill 2. I think a lot of things in its story is not explicitly explained, but given just enough hint that you can guess what happened. There is the novel that explains more, but I'm just counting the game. Everyone interprets things differently based on their own experience and philosophies. I think that's what makes vague stories interesting. It's also literally what Silent Hill is about: everyone sees different things when they are in it.
I have thought of many different scenarios while I was making this game. They may be what I would have expanded the story with if I decided to make the story longer, but they are not one big coherent story, more like directions that the story would have gone.
There are lots of things in this story that are metaphors. Well, I think stories in general are metaphors. And metaphors tend not to work so well if you try to complete it, because they are meant to reflect a small portion of real life.
Anyway, I can tell you what I think was happening, but don't take it as an official extension of the story. I think the story can be summarised as "What is real?"
The girl wakes up in the basement. She assumes she has been kidnapped there. The guy admits it, but then it's just what he said. It's a natural assumption, and the guy even admits it, but is it true? It may not be the first time she is there. Maybe she just doesn't remember or know she was already there before. After all, she doesn't know what day is it. There is nothing in the basement that indicates time. The different scenes in the story don't have to be sequential. They can be, but they don't have to be.
She remembers she has a past. The guy shows her a picture, and it matches with how she remembers her mother. She asks how he kidnapped her, and he said yes to whatever she remembers. The guy is how the girl confirms things. Everything he says, the girl believes, until he shows her a picture of her supposed mother. She says it's different from before. The guy says it's the same as before. So who is right then? Why doesn't she believe him this time? Because it differs from what she remembers? Is there even such a past? She thinks she has a past because she remembers it in the present.
When she sleeps, she often wakes up in a different place. She assumes they are dreams. But the guy keeps talking to her, so that doesn't make sense. Are those dreams? What is a dream?
Maybe I should stop explaining things. Like I said at the beginning, I think it is ruining the experience. Some things are just hard to explain. Some things can't be explained in words, just like you can't show an image in words. You can describe an image in words, but that's different from seeing the image itself.