I have a similar theory, actually
I've only played through Leo's and Carl's route, read some wiki and 7 builds of Arches, so what I say here might be completely wrong
Also, obviously, SPOILERS
My thoughts are based of something Flynn's aunt said:
Quartz within the mines has some special properties, which it exerts to an area around it.
The closer you get to the quartz, the stronger the effect.
The properties of quartz in my opinion are "Amplification" and "Connecting minds".
Amplification means that anyone within the area can start hallucinating, hearing voices, feeling touch and temperature, be having nightmares about something emotionally strong, etc.
Connecting minds is something more interesting.
The area within Echo acts like a network.
Anyone who walks into the area "connects" to this network like an ingridient gets added to a soup.
Within this network, depending on how "high the heat of the soup" is (and also probably whether a person does drugs or not) the information can travel between minds.
The data can be taken out of and get inserted into someone's head without them even noticing or giving their consent.
And so, some guy on the other end of the town can accidentally learn about something that you did, even if you guys don't even really know eachother.
Another thing is: the data gets stored within people's heads.
This means that if absolutely everyone leaves Echo, all the entities and data will be taken with them, and, given that they're not under the influence of Amplification, be dormant within their heads (something that, I think, happens with Sam).
What that also means is that if a wholly new set of people visits the completely empty town of Echo, they will probably be affected by Amplification and get connected into a single network (which might actually be a good thing, because theoretically, you can learn to willingly exchange data between minds and, say, teach someone a song without doing a damn thing), but won't see ghosts and memories of whoever lived there, because that data is gone with the people who left the town.
Another thing is that within this network sometimes entities manifest.
These entities are something in akin to Artificial intelegence - mostly just amalgamations of data (either true and false) which, sometimes, can have some sort of a function and maybe even a mind of their own.
People usually refer to these entities as "ghosts".
They can be based off people who are being missed (like Chase by Leo) or died (anyone who's dead, basically).
When a person dies within the area of Echo, a big chunk of data from their head is being sent out to the network and stored in the heads of random people.
This data might also get complemented by observations of this person, made by other people.
For example: if someone remembered a dead person as someone who they used to be scared of, then this belief contributes to building up a general picture of this person, that is stored in the network.
Someone else, on the other hand, might remember the dead guy as a kind and caring person, which will contribute as well, making the general image somewhat conflicted.
These entities are not material, no, but oh boy do they hurt people and cause them to go crazy :)
I don't think that there's an effective way to fight these entities other than getting everyone out of Echo (cuz paranormal activity is something so much more powerful than an average person, that simply not being there might be the only solution).
Might also try removing all the quartz or whatever it is from the underground, so that it stops, but I have no idea how can you do that (besides, who would be interested in financing this whole shit, especially if Echo turns out to be a site of scientific interest, given its properties?)
Something else I want to say about Arches (spoilers):
If Brian is dead, Arturo and Duke are outta town, then, theoretically, Cam and Dev could be the only people left in town.
If that, and my whole theory are correct, than that could mean that right now ALL the data and entities are within Dev's and (probably mostly) Cam's heads.
And if THATS true, than these two could be in a lot of danger, because of how all the horrors are now concentrated in them and can affect them oh so badly, doing whatever the heck it decides to do to (maybe) keep them from leaving town (or even mines)