
It seems that he told Percy a bunch of stories about his military experiences (Percy uses these to threaten people, talking about how his father knows how to kill people "real slow"). When Nat, with a smile, says that he remembers hearing him tell them, Dolarhyde gets angry, and says, "they were for my son!" meaning, not for Nat. Anyway, when Dolarhyde is talking to the kid, he tells him a story that no responsible adult would tell a child, and it's impossible to tell what his point is in telling the story. He seems frustrated that the kid doesn't get what he's trying to communicate, and this is probably what happened with Percy while he was growing up. What Percy got out of the stories was that his father is a badass, that he will never be as tough as his father, and that the world is a very scary place. And that's how you make a bully.