GITTES: Is there something upsetting about my asking about your father?
EVELYN: No!... Yes, a little. You see Hollis and my fa—my father had a falling out...
GITTES: Over the water department -- or over you?
EVELYN: Not over me. Why would they have a falling out over me?
There are two crucial pieces of evidence here: Evelyn's hesitation when she says "father" and when she asks why they would have a falling out over her. It clearly indicates there's something going on with her dad, and that Hollis and her father must have been angry about something related to Evelyn, too.
EVELYN: I want you to listen to me—my father is a very dangerous man. You don't know how dangerous. You don't know how crazy.
Jake fails to heed this advice. He doesn't realize how deep human evil can run, and so he underestimates his opponent, still imagining Evelyn had something to do with Hollis's death.
EVELYN: She's my sister.
GITTES: Take it easy...If it's your sister it's your sister...why all the secrecy?
Evelyn seems distraught when she tells Jake the woman Hollis kissed was actually her sister. This is another moment where Jake misses the deeper mystery. There must be a reason why Evelyn was so reluctant to share this information…but there's no way Jake could've guessed that her sister was also her daughter.
EVELYN: I would never ever have harmed Hollis. I loved him more than my own family. He was the most gentle, decent man imaginable...and he put up with more from me than you'll ever know...I just wanted him to be happy...
Evelyn hides the exact nature of what Hollis "put up with." It probably involved all the horrible secrets about incest obviously—although she also admits to Jake that she had plenty of affairs.
EVELYN: She's my sister and my daughter!
This is the moment where it all comes out. We learn just how messed up the Cross family really is—"dysfunctional" doesn't quite cover it. Jake couldn't have even guessed at this truth, it was so far beyond the pale.
CROSS: Now where's the girl?...I want the only daughter I have left...as you found out, Evelyn was lost to me a long time ago.
Cross tries to possess his family members. He violated his daughter, and now he wants to control his granddaughter/daughter. He doesn't want love; he wants to own and dominate.