in the comics, he has multiple personalities that control different powers. He has the ability to completely reshape reality, but specific powers only manifest under certain personalities. i.e. one might have pyrokinesis, another telepathy, another telekinesis AND telepathy, one could even have the same powers as magneto, etc.. I think the direction the show is going is that demon thing is his psyche that's in control of all his powers. When he gets angry/upset/scared, it takes over and uses his powers. His brain is so powerful that normal David sees it as some outside force, but it's still him. That's the dis-associative part of schizophrenia/multiple personalities. That's also why memory dude keeps thinking 'David' is fighting him from seeing certain memories. He is, but doesn't know that he is.
Then again, they might just use the Shadow King and say he literally made David crazy to control him, who knows.
