This Dhampir race is effectively a weaker version of a Drow, so I'll compare it to that.
- Ability Score Increase: The Dhampir gets to choose between the ability score bonuses of the Drow and those of the Dragonborn. This is perfectly in line with existing races.
Stuff the Dhampir gets:
Age & Alignment: Don't really matter from a balance perspective.
Size: The same as everyone else.
Speed: The same as almost everyone else, including the Drow.
Superior Darkvision: The same as the Drow.
Sunlight Sensitivity: The same as the Drow.
Dhampir Magic: The Dhampir gets a 1st level spell 1/day at 1st level, and a 2nd level spell 1/day at 3rd level. The Drow gets a cantrip, a 1st level spell 1/day at 3rd level, and a 2nd level spell 1/day at 5th level. This is the first real difference between the two. The Dhampir gets their racial spells 2 levels earlier, which is obviously stronger up until 5th level when it stops mattering. Not getting a free cantrip goes a fair way towards balancing this out, though.
Vampiric Heritage: I'll come back to this.
- Vampire Weaknesses: If you're incapacitated in a place of rest, you're probably asleep. It's pretty easy to kill someone who's asleep in general, so this doesn't really change much. There might be niche cases where it really comes into play but most of the time it shouldn't matter much.
Languages: Common and one other, just like every other race. The freedom to choose is nice, but hardly imbalancing.
Stuff the Dhampir doesn't get that the Drow does:
- Keen Senses: Free proficiency in the most important skill in the game. This is pretty strong.
Fey Ancestry: Advantage on saving throws against some of the most dangerous spells in the game, and immunity to the Sleep spell. This is also pretty strong.
Trance: Depending on your group and your DM, this might be important, but for most players, it's not going to matter a whole lot.
Drow Weapon Training: This is kind of nice, but most builds that need weapon proficiencies involve a class that gives them, so it's not that nice.
Overall, the Dhampir is probably a weaker version of the Drow. Their racial magic trait is a little better before level 5, but after that it's the same, minus a cantrip. Now for the elephant in the room.
Vampiric Heritage
Whenever you grapple, incapacitate, or restrain a creature, you gain the ability to bite that creature dealing 1d6 piercing damage. Furthermore, you can spend your turn drinking the blood of that creature, causing it to loss [sic] 1d6 necrotic damage. The creature's hit point maximum is reduced by an amount equal to the necrotic damage taken, and you regains [sic] hit points equal to that amount. The reduction lasts until the creature finishes a long rest, it dies if this effect reduces its hit point maximum to 0.
The problem with this is "the ability to bite that creature dealing 1d6 piercing damage". Does this require an action? A bonus action? No action at all? Does it give you the ability to do that when you grapple them, or anytime while you're grappling them? It doesn't really give us anyway to know.
The good news is that it doesn't really matter. Unless it requires no action and is anytime while you're grappling them, this is a pretty weak ability. If it's free when you grapple them, you can grapple, bite, let go, grapple, bite, let go and so on up to 4 times (if you're a Fighter). Except that you're just dealing 1d6 damage, so you'd have been better off attacking normally. Assuming your Strength score is 16 or higher, you'd have been better off punching them!
It only gets worse with other interpretations, too. If it requires an action and you can do it anytime while grappling, you're effectively using a turn to deal 1d6 damage, which is pretty much a joke.
Moving along to the other half of the ability, we have the ability to spend your turn drinking the blood of a creature. It's pretty clear what "spend your turn" means, and it makes for a pretty useless ability. Using your entire turn to deal 1d6 damage and gain 1d6 hit points might be ok at level 1 but it's going to become a joke pretty quickly.
The reducing maximum hit points part is useless because if you do enough damage to kill them with it, they would have died anyway. In general, D&D characters want to kill things, not inconvenience them. It could be used as a way to prevent an enemy regaining hit points, but there's a cantrip that does the job better and more efficiently.
So, overall, the Dhampir is pretty much a weakened version of the Drow race with some unique but useless features.
Legendary Dude is right, in that the nature of Curse of Strahd doesn't lend itself well to prospectively breaking it into "episodes" or "adventures." It's designed for the players to be able to meander along their own path, following such leads as they like.
But we've got lots of data from other AL materials to inform a scheme. Specifically, I tabulated the downtime and renown rewards from the twenty-three (mostly seasons 2 & 3) Expeditions modules I had on hand. These included five 1-hour adventures, eight 2-hour adventures, and ten 4-hour adventures.
All of the 1- & 2-hour adventures rewarded 5 downtime days. One 4-hour adventure also rewarded 5 downtime days, while the other nine rewarded 10 downtime days.
Most (18 of 23) modules reward 1 renown point to any faction member participating.* 13 of those 18 also conditionally reward another renown point to members of some specified factions. On average, it works out just over 1 2/5 renown points available per 4-hour adventure.
Summing this all up, AL practices would indicate the following scheme:
Award 10 downtime days per 4-hour session. Award one renown point to all faction members per 4-hour session. (Story-)conditionally award another renown point to members of 2 factions, on average, per 4-hour session. (And spread the love among the factions.)
Personally, I think that's too complicated. I've gone over to "rewarding" downtime as real time. That is, for every day that passes in real life my players earn a downtime day. (That way they've got more to play with when we have to miss a session!) I also think that's way too much renown--remember that the Expeditions format contemplated casual less-than-every-week play, the likelihood that a player would be using different characters week to week, &c. I would recommend dropping the "flat" 1 renown per session, and just stick to 2 or 3 conditional ones, as it makes sense in the story.
So, my best recommendation, after a few years of running AL games:
Award downtime as above, or as real time. Award renown points to two or three factions-worth of players, conditioned on meeting story "goals" keyed to each faction, per session.
* - the five that don't are the five linked 1-hour adventures. Each of these are aligned to a different faction and reward members of that faction 1 renown point at its completion. In other words, if we consider these as one 5-hour adventure, it's another one which gives all faction members 1 renown point.
Best Answer
I'm going to attempt putting together some RAW information that I am able to find.
After reading through the relevant sections (Town of Vallaki) there is no mention of the reason for the characters appearance. Only his duties around the town (such as bullying people, and being a henchman). There is also some mention of his creepy doll collection in a few spots.
As far as the origin of his deformity - here is some information on how it started.
It continues to mention as well that...
Lastly, here is how his arm was returned to him (in regards to what is written).
There is no actual mention as to how this happened. However, the name of the attribute leads me to believe that...
However this is only a guess currently. It has been pointed out in the comments that additional fluff information exists in AD&D2E regarding evil acts committed changing your character in fiendish ways. This looks to be what is happening, and almost certainly is a gift from the Dark Power.