They're from a clandestine lab researching psychic powers, but theyre still a really super primitive version of the psychic powers from the future (even though coil is considered a prodigy there, he's a failure if you compare him to silver, since he can only control metal objects).
Coil and Sheave (scarf) were test subjects in the facility, but sheave was considered a failure due to his lack of ability in conducting psychic energy, he was kept mostly for testing the effects of things on psychic individuals while coil was tested for his abilities. Even though they got along, the difference in how they were treated was very apparent, and one day sheave decided to break out of the lab without telling anything to coil, so when the sirens sounded and coil was told to assist in stopping the deserter he had no idea it was sheave, and the arm cutting was accidental.
Sheave managed to escape regardless, adopted a new name (scarf), and discovered he could channel his psychic powers better through his severed arm, sort of like an extension of his body. Scarf has a high bounty on his head since the lab wanted to keep him silent. Coil remained in the lab but eventually he became too much for them to contain and he broke out as well, trying to follow scarf's trail to meet him again.