Demian/Story
Background
At some point of time before arriving in Calw in K Corp's Nest, Demian is implied to have explored the treacherous Outskirts outside of the City's borders. He would form a positive impression of it despite the location being known to be an excessively dangerous and hostile wasteland home to various inhuman abominations.
Demian is first introduced in the story via flashbacks to Sinclair's school days. At some point during the school year, after Sinclair formed a connection with Kromer, Demian would transfer into the class next to his. Sinclair would describe Demian as someone who was consistently surrounded by a crowd of their peers, yet didn't seem to be attached to any of them. For a time, this would include Sinclair.
One day, Demian walked through the courtyard with a few other students while Sinclair sat through an engineering class. In his boredom, Sinclair would end up watching Demian through the window. When Demian pushed back his hair, letting the sunlight bounce off him, Sinclair noticed the Sign flash on his forehead. Demian would notice Sinclair staring agape and confused. Realizing that Sinclair had seen the mark and the implications of that, Demian returned Sinclair's bewilderment with a smile, and took an interest in him going forward. From that day on, Demian would frequently approach his fellow schoolmate in a friendly manner.
The two had conversations together at school, including one where Demian described a dream of all the lights going out in the City. When prompted, he explained to Sinclair that he felt the Outskirts contained much more potential for love and freedom than the Nest, and implied having spent some time there himself. Demian would later catch onto the fact that Sinclair had given Kromer the key to his basement and encourage him not to give up despite the "painful events" that were to come. Following Christmas day, Demian (having somehow survived the N Corp. Inquisition) would again meet with Sinclair. In few words, he mentioned the tragedy that had just taken place and Sinclair's potential to grow from it, ending off by remarking that he "wanted to see [him] completely bare" before Sinclair fell unconscious.
Main Story
Canto III: The Unconfronting
During the present events of Canto III, Sinclair and the rest of the Sinners were fighting Kromer and losing. Trying to step up as manager, Dante tells him to look at the situation with his heart instead of his eyes, which should show him what matters most. Demian appears out of nowhere and repeats the phrase.
With a wave of his hand, Demian is shown to bisect Kromer in one fell swoop. He then explains to Sinclair that he's changed his fate and that he got rid of Kromer because he didn't want anyone else to domineer over him. When Sinclair passes out, Demian lightly introduces himself to Dante, whose ticking he can understand. Demian would refer to Dante as the adult conditioning Sinclair at the moment, and promise to make a return once his former schoolmate became "one with beautiful stars", then mysteriously and suddenly make an exit.
Canto IV: The Unchanging
After the LCB finishes their retrieval mission, they go out to eat at a restaurant. When Dante steps out for some air they are surprised to find Demian outside waiting for them, making good on his promise to see them again after the events of Canto III. Demian talks about the nature of Mirror Worlds using a metaphor about a bag of chips to represent adult's greed. While taking from other bags of chips in order to have access to all of the flavors wouldn't be considered theft to those doing it, it would be taking from him. The stars as well, while countless, are all different and if someone were to take one to illuminate the world for others then surely the people would rejoice while he would be left with robbed of his star. Dante is unable to respond and so Demian reminds them of how they had once promised to draw him a sheep, even if they don't remember it, before vanishing, leaving behind only a hint of loneliness.
Canto VI: The Heartbreaking
Demian would again approach Dante following the end of the LCB's adventures at Wuthering Heights. Still in full color despite the voided grayscale nature of T Corp., Demian says it is a result of the light not yet reaching him, a star an unfathomable distance away. He then asks if Dante also likes flowers. Demian once again brings up Mirror Worlds through a hypothetical: that you have cared for a single rose for a long time, but one day leave on a long journey just to find that there are thousands of others of the very same rose you once cared for, which incites distress. Dante understands that this is because the experience would make them realize that the rose they truly loved was the one they'd originally left behind. Demian would compare the hypothetical to that of Heathcliff and Catherine's dilemma, who had ultimately wanted each other to be happy and not the ones of countless other worlds.
Demian concludes his point by explaining that "once I learn to properly love my very own flower... I no longer need to protect the thousands of other roses in the world". When Dante asks about the other flowers which have already bloomed, Demian again reminds Dante of their promise to draw him a sheep before disappearing.
Relationships
Sinclair
Demian and Sinclair met around the same time Sinclair became acquainted with Kromer, after Demian had suddenly transferred into the class next to his. For a while, Sinclair would be well-aware of Demian's existence, but wouldn't have any kind of connection with him; viewing him as an aloof, mature person unattached to those around him.
One day during class, Sinclair would absentmindedly stare out the window and watch Demian converse with his classmates. When Demian pushed back his hair, Sinclair seemed to catch a glimpse of a strange mark on his forehead. The two would make eye-contact, and from then on Demian would continually approach Sinclair and form a friendship with him, telling him about his views and his dreams.
Demian had an ongoing interest in Sinclair and his growth as a person. He wanted to know more about Sinclair, who was ultimately too hesitant to open up about his worries regarding Kromer and his prosthetic procedure. Sinclair had a similar interest in Demian, noting that he felt that his soul matured a little each time he spoke to him, and clearly looked up to him despite them being peers. Sinclair felt that Demian was different from the people around them. For the most part, this was a compliment, however he was also a bit chilled by Demian's consistent calmness and seemingly all-knowing nature. Still, Sinclair did not dislike him. While he was hard-pressed about not considering Kromer a friend, he would conversely refer to Demian as “an old friend” to Dante.
At the end of Canto III, Demian would acknowledge Sinclair's effort and achievement that was "hatching from the egg", saying he had changed his fate. In Sinclair's state of absolute exhaustion, he failed to say much, and quickly fainted, however Demian told him that he didn't "want anyone else to domineer over [him]". He also told Dante that he'd be returning once Sinclair has become one with the stars and asked them to take good care of him. While Demian's exact feelings for Sinclair are vague, he possesses a desire to watch him develop, and a form of fondness for him. Sinclair has yet to express exactly how he feels about Demian and his act of defeating Kromer for him.
Near the end of Canto II, Sonya comments that Demian made “quite the impression” on Sinclair. Pre-release promotional materials also hint at a more dependent side of Demian and Sinclair's relationship not yet seen in game.
After meeting Rim in Canto V, Sinclair says he thinks Demian didn't hold any animosity towards them. Ryōshū points out that Demian might just not hold any animosity towards Sinclair in particular.
Dante
Demian considers Dante to be the adult that would condition Sinclair for the time being, first appearing to talk to them after defeating Kromer. He is uniquely capable of hearing Dante's speech, and despite saying that he would only return after Sinclair takes flight, he appears more than once to talk to them in extended metaphors about mirror worlds.
In Canto IV, Dante is initially surprised and confused by Demian's abrupt arrival and his words, barely saying anything as Demian talks. Demian then tells them that they promised to draw him a sheep before leaving, implying some kind of relationship between the two from before Dante lost their memories.
In Canto VI, Dante is much more understanding and responsive to Demian's riddles, as well as relatively unfazed by his sudden appearance, though they are surprised that he can retain his colors in T Corp. Demian once again tells them to draw him a sheep before leaving.