(the real truth)
In one of the final publications of Demon Slayer's manga, Gotouge apparently broke down two major elements as to how demons were created, including why Muzan created more underlings as well as how Upper-Rank demons were created.
So, Let’s get to the first question. Why Muzan Made Demons?
How An Upper Moon Demon Is Made?
Upper-Rank demons are particularly difficult to create because they require a large amount of Muzan's blood, which destroys most recipients' cells.
When upper-rank demons recruit people, they give them their own blood, but an upper-rank demon's blood doesn't have the ability to make demons.
It sends their intention of making a demon to Muzan, and if Muzan approves, it changes into blood capable of making a demon.
The Upper-Rank demons that we've seen appear in the series so far have been terrifying, with Akaza killing Renoku the Flame Hashira at the end of the Mugen Train Arc and the upper-tier demon siblings of Gyutaro and Daki nearly killing the Sound Hashira along with our heroes in Tanjiro, Inosuke, Zenitsu, and Nezuko.
With the final episode of the second season hinting at a gather of the top-tier demons, season three is sure to throw some fans for a loop with the colorful, albeit bone-chilling, members of Muzan's inner circle.