I'm going to attempt putting together some RAW information that I am able to find.
After reading through the relevant sections (Town of Vallaki) there is no mention of the reason for the characters appearance. Only his duties around the town (such as bullying people, and being a henchman). There is also some mention of his creepy doll collection in a few spots.
As far as the origin of his deformity - here is some information on how it started.
"One morning their father and their uncle took them fishing on Lake Zarovich. On the way back to town, a dire wolf attacked Izek and bit off his right arm." - Page 231.
It continues to mention as well that...
"Unlike his sister, Izek was born without a soul." - Page 231.
Lastly, here is how his arm was returned to him (in regards to what is written).
Fiendish Gift. After years of doing Baron Vallakovich's dirty work, Izek awakened from a drunken stupor one morning to find that he had grown a new arm to replace the one he had lost. The new appendage has barbed spines, elongated fingers, and long nails. He can create fire with the snap of his fiendish fingers and has used the flames to put the fear of the devil in every Vallakian. - Page 232
There is no actual mention as to how this happened. However, the name of the attribute leads me to believe that...
It is likely a gift from Strahd/evil beings who support Strahd.
However this is only a guess currently. It has been pointed out in the comments that additional fluff information exists in AD&D2E regarding evil acts committed changing your character in fiendish ways. This looks to be what is happening, and almost certainly is a gift from the Dark Power.