The claim was that Todd had had plastic surgery to look like Walker. The real Walker - Walker Flynn - was a crime boss in Atlantic City. In the original story, Mitch's goons had beaten Todd to a pulp and destroyed his face before sealing him in Victor's sarcophagus in the Lord mausoleum. Todd survived but took Walker's identity (with Walker's permission) to get revenge on Mitch. In the retcon, Irene had the brainwashed Victor's face altered to fool Mitch and 'give Victor more time to become Todd.'
I think as ludicrous as it was - and it was hilarious when it aired - it worked because the entire cast committed to it 100%. Further, the "Victor Jr." angle actually gave a payoff to all the random nonsense Malone was throwing around in 2003 before Howarth left - Todd's renewed obsession with his recently-'undead' father and Victor's mysterious signet ring, "Victor Sr." telling Todd he would've named him "Victor Jr." The ring and the name became key parts of the 2011 story.
Speaking of the ridiculous backstory of the Laurence family, let's not even get into Miles - one of the most random and pointlessly convoluted characters ever and Mitch's second long-lost, presumed dead brother.