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They implied pretty heavily that he was the founder in the Secret Origins story arc. As for the Demon Shredder I think they used him to show fans Shredder's true origins. Seeing the story of the real Shredder was probably the most interesting thing about that whole season.
It's funny because we see 2K3 as Shredder overload but we don't mind it too much when it comes to the Old Toon. Granted no one takes the Old Toon seriously I see a lot of fans complain about Dregg replacing Shredder and Krang for 2 seasons when those two dominated the villain slot for the 8 seasons prior.
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