The Puppets are Soul Echoes that were created in the “Death of Free Will” timeline, wherein Erzi controlled the mind of every one in his Dream. As a result, the Puppets appear like the people of Yharnam, but in a superficial way. Their appearances are exaggerated, especially people Erzi have a negative view of. The puppets are hostile to all outside group, even Erzi himself, despite worshipping the Great One side of Erzi, crafting statues in his eldritch image. They are primarily found in the remnants of their time loop.
They perform a ritual with a captured Winter Lantern to get Frenzied. They believe that the blood spikes make them look more like their god (Erzi’s eldritch form). Also, it drives tamer Puppets to insanity and makes them more agreeable to endless slaughter.