At a very early part in the novel Philip K. Dick states clearly that:
I am Horselover Fat, and I am writing this in the third person to gain
Then later in the novel Philip K Dick is brought to his senses by his meeting with the second coming of Valis, who he believes temporarily heals his mental problems.
So as to the question as to whether Horselover is a literary device or a person suffering from Multiple personality disorder, I would say the answer is probably both.
One of the interesting things about Valis and some of Dick's later writings was that it was hard to tell where his literary reality ended and our reality began. Valis and his related novels are a culmination of a life-time of combining high sci-fi with surrealism.
The character of Horselover Fat allowed Dick to explore himself and his own thoughts on his recent "religious" experience. As well as to blur the lines between science fiction, religion, and autobiography.
From Wikipedia's Valis article:
At one point, Dick claimed to be in a state of enthousiasmos with
VALIS, where he was informed his infant son was in danger of perishing
from an unnamed malady. Routine checkups on the child had shown no
trouble or illness; however, Dick insisted that thorough tests be run
to ensure his son's health. The doctor eventually complied, despite
the fact that there were no apparent symptoms. During the examination
doctors discovered an inguinal hernia, which would have killed the
child if an operation was not quickly performed. His son survived
thanks to the operation, which Dick attributed to the "intervention"
I think Horselover Fat represents the side of Philip K Dick that believes wholeheartedly in his religious experience. While the character of Dick represents himself trying to decide if his experience is real or not.
Philip K Dick, the author, is apparently losing it a little from his religious experience and the novel tracks his progress from sanity to insanity and back again. Because he is a great writer, he is able to take us on his personal journey to madness, and that's where Horselover Fat comes in.