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The answer is complicated.
It's a fakeout meant to make you think he was like summoning demons or something.
It's purposefully vague exactly what he's done, but IMO Oscar either came out of the closet to one of his family members or got caught being gay in the early 60s(possibly by abusing Terrence, the MC's father).
There's a lot of little signs that Terrence used to hang out at his uncles house a lot, and it suddenly stops around the same time as the letter, which means the rest of the family didn't let Terrence visit anymore.
More specifically:
Uncle Oscar sexually abused Terrence over Thanksgiving weekend 1963, when Terrence was 11 or 12 (Note this is when the notches on the basement wall stop.) This is also when President John F. Kennedy was assassinated — note the adult Terrence's series of novels centered on that event, and on undoing the past. Worse, Terrence's parents knew about the abuse and hushed it up. It's possible they even blamed Terrence for the abuse — at the time, it was not uncommon to blame and shame the victim of sexual abuse.
But word gets around in small towns, even if nobody is ever explicitly told what the word is. Neighbors warn each other about Mr. Masan without ever quite mentioning why he's dangerous; their children are told to stay far away from his house, without being told why. Thirty years later, the careful circumlocutions have utterly erased the details, and all that remains is the story of The Psycho House.
Ol' Uncle Oscar was also a smack addict, by the way; his basement safe contains morphine, works for fixing up, and laxatives. (Opioids make you constipated.) Further, a newspaper clipping in the game implies his assistant may have blackmailed him for ownership of his pharmacy, over the child abuse or the drug addiction or both.
Oh yes, that makes sense, thank you. Also, having played another time, I have found a secret compartment on the top-left drawer in the MC'dad office, left to the type writer, there is a torn letter somewhat put back together with tape... I missed this and some other older paper clips you mentioned...
It's implied more than stated. For example, there's a letter to Terrence from his father that alludes darkly to the JFK assassination and Terrence's personal life and fears. There's also a letter from Uncle Oscar to Terrence (torn up, but taped back together, and with what may have been Terrence's name torn out; besides the tear speaking to a very personal betrayal, it implies that Oscar thought he'd screwed up Terrence for good, but he was then relieved to hear of Terrence's (heterosexual) marriage. And, of course, there's Sam's father's reaction to the news that his daughter is gay; while anger and denial weren't unusual parental reactions to queer kids in the 1990s (and, sadly, aren't all that rare today), seeing his daughter's queerness through the lens of his own abuse as a child makes the situation more painful, and his reaction more extreme.
What's more interesting to me is the torn portrait of Terrence's father. This is the most clear indication of hate in the whole game. Terrence's feelings about Oscar are unclear (I mean, he did keep all those newspaper clippings about Oscar) but at some point after Richard sent Terrence that letter, Terrence had reason to hate him so much that he destroyed his father's portrait (assuming it was Terrence who destroyed it). So... what did the father do?
They were having marriage issues they were patching up and were out on a date/going to couple's therapy iirc, because the mom was having an affair with a hot younger man from her office.