In a large skillet, cook the bacon until crisp. Using a slotted spoon, transfer the bacon pieces to a paper-towel lined plate to absorb excess grease. When cooled, crumble any large pieces.
Discard of all but 2 tablespoons of the rendered bacon fat. Return the pan with the bacon fat to medium heat.
Add the chopped onions to the pan when hot and let cook for a few minutes. Then use a wooden spoon to break up any onions that might be sticking together. Cook until soft, sweet, and lightly browned, about 15 minutes, stirring occasionally. If the onions begin to get dry or stick to the pan, add a splash of water and mix.
Transfer the onions to a food processor. Add in half of the bacon, 1 1/2 cups of cheddar cheese, and all of the horseradish and sour cream. Process until well-combined. Stir in the remaining bacon and cheddar cheese, reserving a bit for topping.
Transfer to the serving bowl and sprinkle the last of the shredded cheddar and bacon, to top. Serve at room temperature.