With the Red Key in hand, your final objective for Act 1 is to unlock and enter the basement. The basement door is usually located on the ground floor, often near the kitchen or in a separate hallway. Approach the door, select the Red Key from your inventory (1-4), and use it on the lock (Left Click). The door will open, revealing a dark staircase leading down.
Before descending, ensure the Neighbor is not in the immediate vicinity. He will often patrol the area around the basement door once you have the key. If he sees you, he will chase you relentlessly. If caught, you'll be returned to your house, and the Neighbor will place new traps or board up previously opened paths. Once you've confirmed the coast is clear, quickly enter the basement. A cutscene will trigger, marking the end of Act 1 and transitioning you to Act 2. Congratulations, you've made it past the first major hurdle!