He's basically Ash's personal half-deadite/ half midget trash-talking side-kick. He used to be an inmate of the Sunny Meadows Mental Institution, where Ashley J Williams was staying after the events of Evil Dead II.
From what information can be gathered about his past, Sam's criminal life was with a man named Johnny Sticks, who Sam described was 'as thin as a toothpick' and that they were 'connected'. The two worked as 'Earners' while posing as having various jobs such as ice cream drivers and chimney sweeps for cover while stealing from those who they worked for. While posing as chimney sweeps, the pair would sneak out of furnace vents with the loot they had gathered. However, on the last job they did Johnny got stuck in the chimney and was presumably killed when the furnace was turned on. Sam was arrested afterwards.
He was admitted to Sunny Meadows Asylum for the Criminally Insane due to an extreme case of ADD (Attention Deficit Disorder). During his stay, Dr. Reinheart used Sam in his experiments with the Necronomicon Ex-Mortis to raise someone from the dead without them being possessed by a Kandarian Spirit (Sam was the only sucessful subject). He's also a major germaphobe.
Throughout the game, Sam will start random conversations with Ash (ie. Do you think of me as your best friend?) After defeating "Sparky" (a Deadite that possessed electric powers), Ash meets Sam during a conversation with the spirit of Professor Knowby. Things start out bad between these two as Ash shoots him on sight at first, believing him to be simply just another Deadite until Knowby explains that Sam knows how to close the portals that Reinheart has opened. Needless to say, Ash does find some amusement as he is able to constantly kill Sam over and over since he just keeps been resurrected, much to Sam's annoyance. Furthermore, Sam is able to be possessed by Ash via symbols from the Necronomicon - meaning he is often forced to go into places he doesn't want to go and often ends up getting killed.
As time goes on, Sam begins to see him and Ash as buddies - despite Ash's comments to the opposite and his constant deaths caused by Ash. Ash does show some respect towards Sam, though, such as the look of shock when he accidentally cuts Sam's head off while testing his new chainsaw or when he states the Knowby that he only intends to save himself, Sally and possibly Sam. Both he and Ash were sucked into a portal after defeating Dr. Reinheart (who used the book's power and turned into a troll-like monster).
Sam has several abilities that are unique to Deadites
After being killed in any way at all, Sam will crawl through a magic portal in the ground good as new.
Sam can fire glowing purple-ish blue energy from his hands. These projectiles can kill small enemies (such as rat like deadites) and stun larger ones.
Ash can kick Sam at enemies, attacking them as a distracion. There are three ways this can be done.
Normal Punt: Ash kicks Sam at a deadite or any other target. If it's a deadite, Sam will hold onto it, giving Ash a chance to kill it. If it's a different target, Sam will suffer a cruel death to (usually) clear the way in our hero's journey.
Charged Punt: Sam is charged with Deadite energy and explodes, like a bomb. This can be only used after Ash has unlocked "Bad-Ash" form.
Fiery-Punt: Ash can set Sam on fire (usually with his flamethrower hand) and kick him. This can be used to set other Deadites on fire.
Ash can take control of Sam, forcing him to go through areas that Ash couldn't (and often where Sam doesn't want to go.) If Sam is killed in this form, the player will have to start all the way from the beginning. Sam can also be used to take control of a huge brute deadite to smash away an obstacle.