Kepatio eggs exist partially in cyberspace, at times giving them a flickering outline. The bits of the egg that phase into cyberspace download sections of code that, once they reappear in normal space, gets incorporated into the Kepatio's program/DNA. Once enough bits of code have become incorporated the egg will hatch. A tell-tale sign that the egg is getting close to hatching is when the "eye" begins to open and look around.
The first Kepatio was created in Faela City by a team of independent scientists as part of an experiment on Artificial Intelligence. The goal was to see if a basic intelligence could be placed in hybrid biological/synthetic body and how it would adapt and survive. The experiment worked better than any of the scientists could have anticipated, possibly due to the inclusion of some basic Compewt technology.
The first Kepatio adapted to its environment so well and so quickly that it managed to escape the laboratory confines and hid itself deep in an unused portion of the building complex. There it continued to adapt and improve itself, downloading new code from cyberspace and utilizing parts of its environment to further augment and grow the synthetic parts of its body. When the team of scientists finally managed to track the Kepatio down it had grown to enormous proportions and, instead of attempting to move the huge creature, it was decided to instead study it in this new environment. The team was delighted when the first egg appeared and promptly gave it to another research team for additional study.
Since then, a few Kepatio eggs have made it out into the "wilds" of Faela City and stories are told of these large creatures lurking in unused and rundown portions of Faela's tall towers and other overlooked parts of the city.