“Dagon” is mostly based on another of Lovecraft’s short stories, being about 65% “The Shadow Over Innsmouth.” The remainder is 5% “Dagon” and 30% miscellaneous ideas (mostly mutant fish person incest).
Personally, I’d have taken one look at the locals and decided they were either inbreds, fish mutants, or both (inbred fish mutants). In addition to being spooky in the conversation department, the people of Imboca have pale, clammy-looking skin, bizarre webbing between their fingers, and they never blink. Weirdo freakos, man. Them not blinking is a rather nice touch, even if it looks like the effect was accomplished by the actors wearing uncomfortable contact inserts. The villagers also tend to wander around with rusty knives and farming implements. The only place I have ever been that is scarier than Imboca is West Virginia.
Ah, West Virginia, where the people outnumber the teeth.
Fish got nards.