The story begins with the return of Fazbear Entertainment after the events of FFPS. This is due to the existence of a Scrap Baby plush as well as other FFPS related references found within the game which places this game on the end of the timeline. In hopes of restoring their reputation and getting into the digital age FE decide to create a VR game about the 'rumours' surrounding their history. Everything is actually fine up until they get their hands on surviving circuit boards presumably from the animatronics. While things initially go well with the VR dev team able to quickly recreate the personalities and mannerisms of these long gone animatronics something goes wrong enter Malhare.
Malhare if it isn't obvious already is some surviving form of William. Whether his remnant coated circuit board was recovered from the remains of the FFPS location or Fazbear's Fright doesn't matter too much. Due to Malhare's corrupted supernatural presence the game begins to take a turn for the worse. It may also explain why we see things in the VR game that FE would have no idea about i.e. FNAF 4's Nightmares and Sister Location. William's soul is hijacking the game and Jeremy is the first to discover this. Due to the massive time gap I don't think this is the same Jeremy as the one from FNAF 2 but regardless poor Jeremy's sanity deteriorates fast and unfortunately seems to have killed himself. Cassette Lady takes over from Jeremy and begins recording the tapes and working out a way to get rid of Malhare who plans to transfer himself out of the game and into the body of whoever is playing the game. She eventually comes up with the solution of allowing Malhare to begin the soul transfer before performing a hard reset of the game.
Now obviously there are 2 endings to this game: The Bad ending where you the player are unsuccesful in stopping the transfer and as a result your body is now Malhare's ticket out of this game. Then there is the Good ending where you are successful in stopping the transfer and are greeted to a cutscene of Malhare peering through a door at you and shushing you before walking away. You then return to the main hub where Malhare is gone and a Spring Bonnie plush is left in his wake.
What does that ending mean, well I think that the cutscene is meant to represent the MCI let me explain. During the Pizza Party we're essentially experiencing a distorted memory of what happened during the MCI with William dressed as Spring Bonnie luring us to our doom. We
