It seems to me, that this game has more sci-fi elements in it than supernatural powers/magic abilities. It's leaning more to Inception/Resident Evil logic, rather than Silent Hill ones.
I take it the entire game is within a dream state, with the only exception is when Sebastian woke up and saw Kidman telling him to lay low, but then he back to dream state again.
The beginning of the game, Sebastian, Kidman, Joseph and Connely are in the 1st layer of someone's dream state, presumably Ruvik's (which in the real world, he's nothing but a brain). This goes until Ruvik found Sebastian and the others, and knock him out. At this point, it's kinda cloudy as to who the ones hooking him to the STEM machine. There's also a possibility he's not hooked into another STEM when Seb was knocked out by Ruvik, but instead just sent down to the underground by someone.
After this, Sebastian is in the Sadist's room. I presume at this point, [if he's hooked to another STEM], he's already inside someone else's dream state from the 1st layer (so we're in the 2nd layer when Sebastian is with the Sadist), with Sadist as Ruvik's personification. Taking on how Inception works, when Seb is already at the surface again, with the seemingly apocalyptic is going on, I take it that the dreamer's condition at the 1st layer is worsen (probably experiencing those cardiac arrests like the other subjects), thus he/she can no longer maintain the 'architect' role in their own dream state (thus everything is getting ruined). The reason he/she is capable of surviving that long in the dream state, if we take the theory in Inception again, it is said that when within the dream state, time goes slower, in which 1 second in real world can be 1 minute in dream state. This could also support on how the places keep changing. It took place according to the dreamer's most strong memories. [Though this theory is just a hunch, I have no proof to this]
The safe place where we unlock lockers, upgrade abilities, I think this is Sebastian's own mind state, separated temporarily from whoever dream state he's in at the moment, by accessing it thru special mirrors. These mirrors, serving as portals might also be the work of the ones in the real world, giving Sebastian some kind of help, maybe by giving medication or other sci-fi technology never mentioned ingame. The reason it's getting deteriorated the more we closer to endgame, I think it's because it's not perfectly separating Sebastian's mind from others, thus giving these random information being showed there (missing person posters, newspaper about Ruvik's past/kidnappings/Sebastian's wife, etc).
The ending, I believe we back to the beginning of the game, in which we are in the 1st layer. This time, Ruvik is inside Leslie, since Leslie is presumably inside Ruvik's brain.
I take it Kidman is from other organization trying to stop Jimenez, who's trying to advancing the research about STEM he got from Ruvik. Or, Kidman is from the organization Jimenez is working with, and she's there to help him free himself from Ruvik's mind (so he can continue the STEM development under his name?). Seeing how Kidman resolved trying to kill Leslie in order to thwart Ruvik's plan when other plans seems to fail, it seems to me she's kinda a double agent... (spying as Sebastian's co-partner, as Jimenez's organization ally, and as another organization's agent to destroy STEM).
I hope all these confusions and theories will be answered with Kidman's DLC. It's so intriguing, honestly. At first, I saw this game story as somekind of random stories being packed into one giant messy story, leaving me really confused on what is actually going on because everything just doesn't make sense. (there's so few explanation ingame) But after seeing it from different perspective, there are actually decent theories which could tie together some of the dots.