A protestant theory on this:
So what are demons? Demons are the disembodied spirits of the Nephilim who are mentioned in Genesis chapter six. The Nephilim are the offspring of fallen angels and humans. The Nephilim were destroyed in the flood, yet their spirits remained on the earth.
This view is the oldest belief among the Jewish people. It is a belief that the apostles held to as well. Let me prove why I believe this.
Several years back, I came across the book of Enoch. The book claims to have been written by Enoch himself. I’m always suspicious of any non-canonical book. This book was no exception. I read it with deep cynicism. However, I did not read anything that would not be in accord with sound doctrine. It confirmed all the basic doctrines that Christians and Jews believe today. (There are other books which claim to have been written by Enoch. I found these books to be unscriptural.)
What I found most interesting was that the book claims that the “sons of God” mentioned in Genesis 6:2 were fallen angels, something that many Christians believe today. It also teaches that they produced a race of beings that were half angelic and half humans called the Nephilim. And when they were destroyed by the flood, they remained on the earth as demons. Let me share with you a portion of the book of Enoch:
But now the giants who are born from the [union of] the spirits and the flesh shall be called evil spirits upon the earth, because their dwelling shall be upon the earth and inside the earth. Evil spirits have come out of their bodies. Because from the day that they were created from the sons of God they became Watchers: their first origin is the spiritual foundation. They will become evil upon the earth and shall be called evil spirits. The dwelling of the spiritual beings of heaven is heaven; but the dwelling of the spirits of the earth, which are born upon the earth, is in the earth. (1 Enoch 15:8-10)
It is clear from the book of Enoch that evil spirits are the giants who were born from the union of spirits and flesh.
Take it with a grain of salt, but it makes sense because it seems most who encounter demons or “shadow people” claim these things are giant, like 8-9 feet tall.