First, I'd like to point out that Timmy and Tommy look identical between themselves, and likewise, look almost identical to Nook. This suggests that Nook and his sibling are identical twins themselves. This would, according to genetics, make Nook's sibling male, and the same age as Nook, if he is still alive. And he most likely isn't, considering how Nook takes care of the nephews and not his brother. If the brother is still alive, though, he probably abandoned Nook's family, and his wife and kids, leaving Nook to take care of them, and it probably happened after their parents died, as well, because otherwise Nook's parents would take care of the nephews. (Or maybe the parents are just too old. Who knows.) And where he went, and why, is also a mystery. But he must bring so much shame to Nook's family that Nook never wants to think of him again.
Considering this, Nook's brother might've befriended Crazy Redd, and the two might've done something at some point that made Nook hate both of them, which explains the rivalry between the two. This thing they did, Redd and Nook's brother, might've caused not only Nook's family to be affected, but Sable's, too, considering that they both lived in the same town in their youth.
Let me call to mind a well-known fanfic: The Terrible Secret of Animal Crossing. In this story, it is thought that everyone used to be human, and that the gyroids caused them to "cross" into their favorite animal. This idea, singled-out, may be entirely possible. This idea may have something to do with Redd and Nook's brother, and the event they caused that spurred every other event mentioned in-game. Maybe Nook's brother was a thinker, a dreamer, an outside-of-the-box type guy, and he had a knack for building and inventing stuff. (This kinda contrasts Nook's logical, business-y personality.)
Now think about Crazy Redd. Do you know the background of his name? It comes from a book involving Hell, and there are demons that do different things to people in it. One of the demons had the name "Crazy Red," and I believe he punished the people that used deception, lied, cheated, and stole. (I could be wrong.) Which is kinda what Crazy Redd does, right? He tricks you into buying his wares in other games, and they're much more expensive than Nook's prices. His art is most of the time fake, and then you have to wonder where he gets the
real art from. Well, duh, he stole it! That's why you have a completely empty museum every time you make a new town, he stole your town's art and you have to get it back. But why does he do these things? Did a certain event in the past cause him to act this way?
But before we go into that, remember that Redd sometimes sells other things in certain events in your town, such as the Fireworks Shows in summer. He most likely does these things for Isabelle to help her out. Maybe he does this so Isabelle doesn't suspect anything? Isabelle and Digby are new to the whole system. It's possible. Or maybe Redd just wants to do good for once, maybe he wants to turn over a new leaf (game title reference). Maybe that's also why he makes obvious mistakes in his fake art, to give you a chance, whereas in the past you couldn't tell whether the art was real or not. Maybe because Isabelle was so nice to him, it caused him to start changing a little. But back to talking about the past.
If we paired the crafty, sleazy Crazy Redd with the supposed imaginative, inventive brother-of-Nook, there's a big potential for close friendship, close partners-in-crime. These two, put together, would've been able to fool anyone. But maybe, back in those days, Redd and Nook's brother were good, honest people, like everyone else. Maybe something was wrong in their world back then. Maybe it was too dreary and boring for these two. So they wanted to spark life up a little. Maybe they dug into some science, wanted to try out things. Maybe they had an interest in animals.
But remember how I mentioned before that fanfic and the gyroids? Let's bring to mind what the story is behind gyroids. They are called "Haniwa", and they come from Japanese history. At some period in Japan, these clay figurines were buried with the dead. Legend goes that they house the dead people's souls. So technically, whenever you dig up a gyroid, or haniwa, you're digging up an encasement of a deceased person's soul, which explains the hypnotic sounds they make and why they're hollow. The author of The Terrible Secret might've led the informed readers to the conclusion that the souls in the gyroids are a bit vengeful. Although the reason behind the gyroids/souls causing people to turn into animals, of all things, is a difficult topic, their reason for vengeance isn't as much.
What if, before the Event, gyroid-housed souls were actually pretty nice chaps? Then something caused them to have a different and angry outlook on humanity? It might be whatever devious thing Redd and Nook's brother got together for. Maybe they ended up creating something, something highly dangerous, that had something to do with animals as well as souls?
Now here comes the story part, if you have time to read it.
here.
So yeah. Also, only the inhabitants of that town and towns nearby were affected. That's why there are still humans.
As a continuation, Redd had long since fled town and also, with the help of nearby townsfolk, regained his sanity. But when he looked back at what he had done, he was overwhelmed and ashamed. He fell into a deep depression and soon only found satisfaction in doing little bad things to people, like stealing and lying. He started up a black-market business and he would come by every so often to town to try and make money. And it picks up from there in the first AC game.
