What happened with walter?

From what is subtly hinted at by other characters, Walter made a deal with Millennium over 50 years ago when he attacked their operation in Warsaw with Alucard during World War II. In exchange for letting the senior members and their battalion escape and his assistance in defeating Hellsing, he would be granted enhanced abilities through an experiment in order to destroy Alucard.

Walter was obsessed with besting Alucard since he met him and proving his own worth; like Alucard, he relished in violence and war, but unlike Alucard, who sought to be defeated by a proper opponent (a noble human being such as Anderson), Walter sought to best the most formidable foes. Alucard was that opponent for him.

It is implied that Walter's deception is what enabled the Valentine Brothers to know the location of the Hellsing headquarters and how to best strike it, as well as why Walter made a sabotaged gun for Alucard. In the original TV series, the inside agent was a member of the Round Table, but in this series and magna, it was Walter.

When Intergra's father died, Walter was explicitly instructed by the Round Table to keep an eye on Richard, the power hungry uncle who wanted Hellsing for himself, out of fear that he would try to murder Integra. Afterwards, Walter, undoubtedly under Major's orders, was nowhere to be found and Richard sure enough attempted a coup against his own niece, implying that Major and Walter wanted Integra to be put into a situation that left her no choice, but to release Alucard once again, so that they may fight him again in the future.

When Millennium attacked London, Major sent the Captain to retrieve Walter, so that he may finally undergo the experiment. Walter made it seem as if he was off to battle the Captain, but he was simply continuing to mask his betrayals until the proper moment. The experiment made him younger and more agile, but was deeply flawed, hence why he kept becoming younger. The Major knew Walter would fail, but used him for inside information and to compel Alucard to absorb the millions of souls within London's deceased population to finally defeat him.

Walter still had immense respect and love for Integra, but apparently could not let go of his obsession to defeat Alucard. Millennium's goals meant nothing to him, so long as he could achieve his own personal desires. In the end, he realized what a fool he was and regretted his decisions, firmly embracing his respect for Integra and Alucard, which Integra did return by crying when he died.

I agree it is extremely messy and doesn't add up all the way, but I believe this was the intention.