Salad Fingers lives in a post-apocalyptic world alone by himself. He probably suffers from some severe dementia, psychosis or posttraumatic stress disorder caused by "The Great War" he keeps referencing. One could assume he's one of few survivors of a nuclear war where his family and friends died. The radiation probably caused his deformity and the deformity of the few other survivors as well. And he's constantly by himself, talking to finger puppets like they're his friends so one can assume he's gone mad living as a deformed being in a post-apocalyptic world by himself with little to no food. That also explains why he's taken to eating such things like the finger puppets, hair, and resorted to cannibalism.
He probably also developed his fetishes with pain, rusty metallic substances, and nettles, because that's all that's left.
Who do the hairs in episode 8 belong to?
Possibly Roger the Radio's wires...
The ending of episode 5. The shock of hearing another human voice after God knows how long drives poor Salad Fingers into a horrific Heroic BSOD, huddling in a corner of his room while hallucinating the little girl's image, with empty, bloody eye-sockets, making more "mouth-words" at him. We never see her again after this. Now...why were her eyes gouged out like that? Was there a different kind of reaction that we didn't see?