Seto's Grandpa is an old man who dies right before the action of the story. Despite being called "Grandpa", Seto is not actually related to to him. Rather, he was simply raised by the old man. Grandpa's death starts Seto's journey toward Tokyo Tower. It is heavily implied in the game that Grandpa was in some way involved with Glass Cage.
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Throughout the game, it is implied that Grandpa was a part of the Glass Cage Project. In his archives there are several volumes on the project and a copy of Pirate Isle. He also possessed a part of the AI Mainframe which he gives to Seto as the Strange Blue Stone. Plus his death note shows much remorse for his past, claiming that death cannot wash away all his sins. And he tells Seto to go toward Tokyo Tower to find survivors, which happens to be where Shin and the "planned children" are stationed. Finally, Sai recognizes the locket Seto has when they first meet, and she talks as if she knew his Grandpa.
Originally, many fans speculated that Grandpa was the scientist in the picture Crow had, mostly due to the connection with Glass Cage and, more specifically, the Pirate Isle book. But Kawashima Kentarou, the director, producer, writer, and designer of Fragile Dreams: Farewell Ruins of the Moon, stated in an interview that Grandpa is actually Shin himself but his real human body after he had copied his personality to the AI mainframe in order to start a world without language. However, he saw the error of that idea and tried to leave the project. This is backed up by the fact that both Shin and Grandpa share the same voice actor in the both the Japanese and North American versions, Toshio Furukawa and Troy Baker respectively.