Once upon a time, there was a short black-haired man named Rumpel Stiltskin, who was raised among the witches of Far Far Away in the Crone's Nest. He was taught about the magic of his family's magic contracts. One day, he came across the daughter of the Far Far Away miller, who had been asked by the King of Far Far Away to spin straw into gold. He did this for her twice, but the third time, he asked for her first born child, which she reluctantly agreed to. When the King saw the gold, he was so impressed by it he married the girl and she became Queen. She bore the King a daughter, which she named Lillian. When Rumpel came to collect, the King banished him. But Rumpel swore revenge. He would bear a child, who would be the next King or Queen, while he became King Father.
Sometime after, he met a red-headed dwarf, they fell in love and produced a boy, who they named Rumpel Stiltskin Jr. Sr taught Jr what he needed to know about the "Magical Transactions." Unfortunately, Mrs. Stiltskin died, leaving Rumpel Sr to spend most of his time in the Poison Apple.
Rumpel Jr's chance to become King almost came when the late King's daughter, Lillian, and her consort, Harold, came to end their daughter's curse, but that chance was blown away when someone rescued her, who turned out to an ogre named Shrek.
Rumpel Sr's chance to invade Far Far Away came when Prince Charming came to the Poison Apple and rallied him and the other villains, wanting revenge on Shrek. They almost succeeded, but the Queen's nephew, Arthur, told the villains they could be something else, which had Rumpel Sr convinced, but not Rumpel Jr.
Rumpel Jr had another chance when Shrek was at his darkest moment. He had Shrek sign a contract which would allow him to have one day as a "real ogre," but Rumpel Jr secretly wrote him out of existence, so in the alternate world he went to, he never existed, Rumpel Jr was King and Rumpel Sr was King Father. However this world was destroyed when Shrek kissed Fiona before he faded away completely.
Back in the real world, Shrek had Rumpel Jr captured in his swamp. Rumpel Sr couldn't care any less, for his son was his means to an end.