Katsuhito initially told Tenchi many stories about the demon in the cave so that his grandson would try to free Ryoko [OVA Ep.1]. Katsuhito understood Ryoko's action 700 years ago where Kagato's fault. Once Tenchi was older Katsuhito gave him the keys to set his plan in motion. His grandson turned out o 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.