Now, its been a long time since I played the first game, so some of my recollections may be poor. The bits in square brackets are what I am not sure about, and I have no idea how many of these elements are in the film (I've yet to see it).
Don't read if you want to avoid potential spoilers. And yes, it is complicated.
Firstly the "foggy" Silent Hill and "dark" Silent Hill are "artificial/dream" realities created by Samael (the demon the cult worships) and Alessa (who was created by the cult to give birth to Sameal in our dimension [she was a test tube baby created by Dr Kaufmann and a cult ritual, meaning she has special powers]). Sameal will "clense all our sins", but in the process will destroy mankind, and create new life on Earth. The cult considers this a price worth paying, as they see mankind as corrupt and greedy.
When Alessa refuses to comply with the cult's wishes and actively begins to resist them, the cult tries to force her to comply (starting the fire), but Alessa is able to cling to life and remain in a coma, while part of her "essence" manifests itself as a baby, [as the cult expected]. However, this baby is smuggled out of Silent Hill by Nurse Lisa and adopted. [The fire started by the cult was only intended to affect one house, bit it is probably the one that burnt down most of the town. The fire is mentioned in all of the Silent Hill games.]
Lisa is tasked with looking after the sleeping Alessa for the cult [who may decide to use Alessa again when/if she recovers]. [This is probably a punishment, as the hidiously burnt body makes people in its proximity feel ill and sick]. During this time Alessa has mentally retreated into nightmarish dreams [hiding her continued presence from Sameal?]. When you enter the 'dark' Silent Hill, you are entering Alessa's dreams. The foggy Silent Hill is the dimension Sameal controls. [I believe, but can't remember for sure, that you only ever meet Dahlia, the cult's leader, in 'normal' or 'alternate/foggy' Silent Hill.]
Lisa was forced to become addicted to White Claudia, a drug the cult manufactuers and sells to tourists [to ensure her loyalty to the cult. It is possible the cult finds out about her betrayal and this is another punishment or a means of ensuring her loyalty] Dr Kaufmann, who is a member of the cult has no interest in the rebirth and reshaping of man, but is only concerned with profiting from the White Claudia drug. Lisa finds out and is killed by him when she theatens to inform the cult of his motives (you can see the argument in the attract movie before you start the game). This means the Lisa who appears later in the game [always in the 'dark' Silent Hill] is not Lisa, but Alessa's memories of Lisa. Lisa is not a monster, [because Lisa is the only human Alessa has good memories of, as the cult members abused and repressed her all her life.]
8 or 10 years later, Harry Mason is driving through Silent Hill with his adopted child, Cheryl. Cheryl is the physical manifestation of Alessa who was physically created by Alessa. Her proximity to Alessa gives her strength and Alessa begins to awaken. [The cult notice Alessa is stirring, and guess what has happened.] Harry sees a shadowy doppleganger of his daughter in the road and crashes the car. When he comes around his daughter is missing and he goes looking for her. Alessa has taken Cheryl and trapped her in 'dark' Silent Hill, [so that the cult cannot get their hands on her, for she has the same powers and attributes and would be used by the cult in the same way Alessa was]. Dahlia knows what has happened [and also knows Alessa will never give the child to her or the cult] and tricks Harry into going to look for his daughter, giving him enigmatic clues every so often [because she wants Cheryl for the cult and thinks Alessa may let Harry regain his daughter].
As for the ending, its hard, because there are so many different ones. I can't remember the exact details of them (I've seen two) but in one Alessa and Cheryl are unified and become a baby again (and Lisa climbs up from the pits of hell to claim Dr Kaufmann's soul [although this could once again be Alessa's faux Lisa]).
In another (the 'Bad' ending) it simply goes back to the car crash, and we see Harry's head resting on the steering wheel, the horn sounding. He blinks a couple of times, and then dies. Which indicates the whole of Silent Hill could have been the delusions and dreams of a dying man trying to find his daughter before he passes on.
Obviously, this is the 'wrong' ending considering the sequels.
In Silent Hill 2, James and others are drawn to the town because they have spent time in the town before [and have been tainted by White Claudia?] The town seems to 'call' people when they are consumed by their own guilt, with the intent of pushing them over the edge. 'Dark' Silent Hill still exists, [which indicates some Alessa's influence is still present.] However, 'Dark' Silent Hill is not all bad, as many subtle clues are present to help the individual come to terms with their guilt. [again, this could be Alessa's influence]. Sameal seems to feed on feelings of guilt and dispair. James is called because he recieves a letter from his dead wife, Mary. However, at the end of the game, the letter is blank, meaning no such letter was written. When in Silent Hill, James meats Maria, a sexier, more attractive version of James' dead wife [the wife he always wanted Mary to be?] and he sees her killed a number of times. This is done to inflame James' guilt and sadness, need and desire. At the end, James confronts his guilt head-on by confronting Maria, who turns into a demon and attacks him. Although James "wins", the others are not so lucky, and one assumes many more are destroyed by the town, making Sameal stronger so that 16 or so year later...
In Silent Hill 3, Cheryl is a teenager, called Heather to protect her identity. The cult track her down and kill her father, after first using a private detective to locate her. She travels to Silent Hill to get revenge on the cult and its new leader Claudia. But is this what Sameal and the cult want her to do? Silent Hill 3 is mainly a retread of Silent Hill 1, but it does give more background to the events of the first game, including revisits to several key areas.
Silent Hill 4: The Room deals with Walter Sullivan (who was mentioned in Silent Hill 2). He is sort of like a "Plan B" in case Alessa failed, who was an orphan brainwashed as a child by the cult at the same time Alessa was growing up. He has been taught another method of bringing Sameal into our dimension, and carries it out (turning on the cult as he does so). You have to stop him from finishing the ritual. He doesn't know he is summoning Sameal, he has been led to believe he is going to bring back his mother (who died at childbirth, in the room of the title)
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But storywise, they are there to increase James' feelings of guilt and despair.
