Kowloon Walled City started life as a Chinese military outpost. Even when the New Territories were leased to Great Britain, the city technically remained under Chinese rule. When the British eventually claimed it, they found the village almost empty apart from an old Mandarin. By the middle of WWII, very little remained of the city except the historic yamen and a few other buildings. After the end of WWII, the Chinese government announced their intent to reclaim the Walled City, and thousands of refugees took over the area under the Chinese protection. The British Government attempted to get rid of the Chinese unsuccessfully, and after that adopted a hands-off policy.
With this hands off policy, Kowloon Walled City became a haven for triads and criminals, as well as normal Hong Kong families. Home industries thrived, and even up until its demolition in 1993, the city was well known for dentistry, though the dentists were largely unlicensed. As far as illegal activity goes, opium dens, prostitution and gambling also thrived in the City.
Here is Kowloon Walled City in 1980, 13 years before demolition:
As you can see, it was a very small space that was very densely packed. Many of the buildings had pathways through them so that it was possible to go from one side to another without actually touching the ground. Building was pretty much unregulated, and apartments were on average 250 square feet. Balcony cages and rooftop additions were a common way of creating more space.
And a man is threatened with a gun for some unknown crime.
This place is well worth a visit. It's not exactly on the beaten track for many tourists, but can be easily reached on the number 1 bus from Tsim Sha Tsui. Kowloon Walled City was a place that combined, seamlessly, aspects of both every day life in Hong Kong, and the seedier underside of it. I won't say my quest for information on this place has been completely fulfilled, but it is certainly good to understand a little bit more of another aspect of Hong Kong life pre-handover.