THIS IS THE ORIGINAL VERSION OF PART II -- THE REVISED VERSION IS AVAILABLE IN THE POST ABOVE OR BY CLICKING HERE
Dharma began as straightforward scientific experiments aimed at influencing the core factors of the Valenzetti Equation. But shortly after the experiments began, there was an Incident. Scientists studying the Island's electromagnetic fluctuations accidentally unleashed an ancient energy source, causing strange effects worldwide. As a result of this Incident, people across the planet began developing special powers, including the ability to make their own luck.
The energy that Dharma released was contamination left from the Fourtoes' disastrous attempts millenia ago to harness a small magnetic star (catch a falling star?) for tesseracting. They lost control of the experiment causing a larger version of the Swan implosion -- maybe even Le Crater. The analogy is to Paris Crater, a massive implosion caused by ill-fated French time travel experiments using black hole technology, in Dan Simmons' books Ilium and Olympos.
The Fourtoes' catastrophe wrinkled spacetime around the Island, which is why it's accessible from points across the planet. Anyone exposed to the Island's energy contamination is transformed at the quantum level, exhibiting special powers like hyper-empathy and the ability to affect the future. The latter talent is loosely analogous to the legendary Achilles who is described in Simmons' novels as a freak of quantum probability:
"I see a quantum singularity," says the goddess Nyx. "A black hole of probability. A myriad of equations all with the same single three-point solution. Why is that, Artificer?"Note the reference to being bathed in the "celestial quantum fire" which is a good metaphor for exposure to the Island's energy (the Flame?). Instead of becoming invulnerable, however, those exposed to the quantum "flame" can affect probability and link minds. This realization inspired a new plan by Hanso and Dharma to mass produce and aggregate the power to control luck in hopes of altering the Valenzetti's grim prophecy.
The god of fire grunts again. "His mother, Thetis of the seaweed tangled breasts, held this arrogant mortal in the celestial quantum fire when he was a pup, little more than a larva. The probability of his death day, hour, minute, and method is one hundred percent, and because it cannot be changed, it seems to give Achilles a sort of invulnerability to all other attacks and injury." (From Olympos.)
Before that could happen, however, the energy contamination had to be contained on the Island. The device behind the concrete wall in Swan was an electromagnetic accelerator that channeled some of this energy into a sort of stasis bubble. The analogy here is to wormhole stabilizers from Dan Simmons' universe, though Swan's device had the reverse effect of plugging Island portals that leaked its effects worldwide:
“The posts were obsessed with time travel. Those thousands of big accelerators produced thousands of tiny wormholes, which they tweaked into stable wormholes—those were the swirling masses you saw at the end of most of the accelerators.”
“And the giant mirrors?” said Harman.
“Casimir Effect,” said Savi, “reflecting negative energy into the wormholes to keep them from imploding into black holes. If the wormholes were stable, the posts could have traveled through them to any place in space-time where they could position the other end of the wormhole.” (From Ilium.)
Note that last part about preventing wormholes from "imploding into black holes." Swan Station seemed dangerously close to doing just that before activation of the fail-safe. Like many, I suspect the electromagnetic device and countdown also served as a deadman's switch. Dharma figured that the bubble's implosion would destroy the stations and Island itself -- they didn't realize (or perhaps care) that it might also end the world.
Dharma similarly failed to consider how isolating the Island in spacetime would affect test subjects. After the first Incident, the stations were redesigned as an intermental network that harnessed subjects' collective power to affect fate. Swan served as a cocoon where occupants developed into masters of probability. That power was then collected and reflected intermentally to other stations via hyper-empathic subjects in Pearl.
But life on the Island was lonely, and test subjects were selected for psychic ability not mental stability. Separating these subjects from the natural timeline just added to the stress of physical isolation on the Island. In Lord of the Flies fashion, their collective fears and anxieties exploded in a fresh series of Incidents, including animal revolts and the "catastrophic Cerberus malfunction," like Hurley's curse or the Id Monster from Forbidden Planet.
Many died or fled the chaos until one man (a great man!) restored order using his hyper-empathic abilities to control and compartmentalize the remaining survivors' dark impulses (i.e., their bad twins). I'm guessing that great man was Benjamin Linus, who may have been "reborn" as a powerful psychic in the original Incident years before. I've argued previously that he's analogous to the Mule from Asimov's Foundation and Empire.
By submitting to Ben's iron will, the survivors regained control of the animals and Smokey. But folks with a talent for the improbable continued to find the Island bringing all of their mental baggage. This created a vicious cycle as these arrivals used their own abilities to subconsciously attract more people. Even the Others aren't totally immune to such temptations -- Ben's desire for a spinal surgeon did indeed help bring Jack.
The Others began categorizing new arrivals. Good people (i.e., those able to restrain their bad twins) are incorporated into the community, as are children who can easily be indoctrinated. Questionable people (e.g., Desmond and Kelvin) are quarantined in stations like Swan, where their abilities are suppressed with vaccine. Bad people (e.g., Nathan) are killed either by the Others or Smokey before their "bad twins" can cause problems.
So what happens now that Swan imploded? For one thing, the Island's contamination will again spread worldwide, spurring more psychic evolution and possibly the apocalypse. I suspect, moreover, that Dharma's funders (e.g., Paik, Widmore, the U.S. military, etc.) have long wondered what happened to their investment. Look for those interests to begin conspiring over the Island in Illuminatus fashion now that it's part of our spacetime again...