Get ready, this is a long one! XD
Upstairs is the other bedrooms, so you're not missing much. The story reason she won't go up is that she's taken anything of value down stairs and has no need to go upstairs, not to mention the memories of her family could upset her one way or another. The technical reason you can't go up is because one of the contest guidelines was to make the game 10 to 20 minutes long, so I left it out to shorten things.
As for who "HE" is... Well, it's hard to describe. It's a supernatural entity, and in the game it manifests itself as the thing outside the window, as the peeping wall (that background on the seventh day) and as those Alice clones with too many eyes. While the figure in the basement and the skeletons are unusual, those were spirits from the well victims. "HE" is also one of the contributors to Alice's insanity.
There's a bigger story at work, especially concerning the forest itself, so things will make more sense once the next game comes out. Anyway, it makes me glad that you enjoyed my game so much, and that you're paying attention to all the details!