Demons are "real", as real as they are able to be. Some demons just exist because they have to, theres no way around them coming into being. Atrocities done in great anger or hate can create demons to avenge them. Other demons are created on purpose or not on purpose by people as thoughtforms, they can feed off negative emotions until they are so powerful they become demons and no longer need their creators.
possession comes in two forms. passive possession, which most people are under, That means the demons, good, bad, and neutral feed off your emotions to stay alive, usually taking only what they need.
Then there is aggressive possession, in which the individual's body is under the control of the demon, usualy if not always do to some agreement made, wittingly or unwittingly.
sources: The knowledge given by my own demons and my own past dealings with them.