There is a sort of compulsive desire among some fundamentalist Christians to feel persecuted; they want to feel as if they are under spiritual siege. I suspect this has something to do with insecurity about the communal bonds within their congregation (and something else to do with substitution for a more healthy fantasy life). The solution to this, of course, is Satan–“Don’t leave the congregation, the Devil is waiting for you out there. Stay here with us.”
The problem with that is that it’s rather abstract. Sure, they’ll tell you that Satan is real, but they’ve never seen him. It makes for a nebulous threat, and often that’s not good enough, so they need something more solid and close to home to fear. That’s where “devil-worshippers” come in. This role generally falls on whichever group in the area is the least like the congregation; the congregation is Godly, after all, so the more different someone is, the more Satanic they are.
Churches in religiously diverse areas have it easy. They have lots of people to fear. In more isolated areas there may not be any atheists, or Jews, or Muslims, though. In places like that, the congregation must rely on fearing other Christians, which is just a little awkward. Fortunately, Catholics are superficially pretty different from Protestants, they have that whole wine-as-blood thing, and horror-movie Satanists use Catholic trappings. All they have to do is redefine Catholics as “non-Christian”, and they’re good to go. In no time, you’ve gone from Communion to lurid stories about Catholics killing babies and drinking blood. (Yes, I’ve actually heard blood libel aimed at Catholics–oh, the joys of a rural Southern childhood.)
In extreme cases, there may not even be any Catholics handy to fear. This has been known to initiate church mitosis. The congregation picks some obscure point of doctrine–conveniently held by fellow members that they don’t much like–to fight over. Eventually, one side kicks the other out, and both sides declare the other to not be “true Christians” (and therefore tools of the Devil). This provides both groups with someone to be afraid of and tell stories about, and is how such churches reproduce.
It does seem to be less common for them to turn on Catholics (or each other) these days, though. I attribute this mostly to improved communication making it easier to fill their persecution needs remotely. They need only tune in to their chosen Fundie Channel, clutch their pearls, and be outraged at the War On Christmas.