Katsuhito intentionally told Tenchi many stories about the demon in the cave so that his grandson would try to free Ryoko (OAV Ep. 1). Katsuhito understood Ryoko's actions 700 years ago were Kagato's fault. Once Tenchi was older, Katsuhito gave him the keys to set his plan in motion. His grandson turned out to be more powerful than suspected, however...
Katsuhito has been able to conceal his age and identity because his substantial influence in Japanese politics (owed to 700 years of experience) allows him to alter the family register whenever he chooses.