Most of the game is based directly on Scottish mythology, a small amount of it is improvised. Whenever we need something specific we do make it up, but a lot of the game is filled with direct references. The bairds and bg gallery are good places to learn a lot about the lore for our game too.
And Grace is indeed a reference to the loch ness monster, but the first sighting was 30 years after the game so we didn’t feel is appropriate to do anything crazy like that. :B
If you check out Bairds there’s some pretty good hints to what Grace is ;)