The faces of fear
In a college course I took on Gothic literature, I was taught that the readers of Victorian England distinguished between two types of fear: horror and terror.
Horror is the fear from which one flees. It is obvious, bold, and usually aggressive. The creature in the movie Alien is a horror, as most monsters are.
Terror is the fear that paralyzes. There is an element of mystery about it that makes the victim immobile with wonder and uncertainty. Ghosts tend to be terrors, as are cool-tempered murderers and vampires. Terror is often accompanied by what Freud labeled the uncanny... the feeling of something being strange but somehow familiar as well.
Which face to show?
In every aspect of a story's presentation, frightening objects are capable of being either horrifying or terrifying.
A harsh, guttural roar will cause a player to run from the sound. The muted gurgling sound of someone being strangled, on the other hand, will make the player cringe and look for the source of the sound ("Is it a strangling sound? or is it something else?" the player wonders). A snake-like hiss causes the player to recoil and prepare for danger. Heavy breathing and wheezing in the darkness raises the player's curiosity. Screams and whispers evoke different responses.
Slow movements and villainous smiles attract attention, while ferocious charges and the fiery collapses of structures tell the player to get moving. Gargoyles and malevolent artworks invite the curious eye, but spikes and electric sparks encourage one to keep away.
Quick, bitter bursts of angry mutterings raise one's defenses against imminent danger. Slow, graceful, philosophical eloquence invites the player to be caressed by beauty within the darkness. Words can contain fire, or they can contain poison.
Enemies can hunt the player with brute determination, glaring hatred, and barking bloodlust. Or evil can be clothed in charm and elegance, pursuing the player patiently, teasingly, even affectionately. I'm talking about AI here, by the way. ;)
Toying with expectation
Building a particular, fearful expectation in a player and then revealing the source to be harmless can have two effects: (1) it can make the player paranoid, or (2) it can make the player skeptical. Either result can be good. The paranoid player's tension makes even harmless surprises eventful and raises the severity of the scare when he encounters truly fearful beings. The skeptical player's mistrust and constant questioning of her own expectations monopolizes her thoughts and makes her slower to respond to real danger, potentially giving the danger a brief advantage.
An exhaust hose can sound like wheezing. A flap of plastic can sound like a scurrying animal. Scraping metal can sound like screaming.
Doll parts can look real until you see the stuffing. Water and veils can distort things beneath/behind into startling images (such as faces). Crystal and glass can make things seem bigger or smaller.
Language can be ambiguous (intentionally and unintentionally). Personalities and cultures can include misunderstood tone-of-voice, expressions, and customs (a player could be frightened away from allies by such customs, like an assertive tone mistaken for aggression).
NPC actions (scripted or AI) can be purposefully erratic or nonsensical. Why did that young girl gleefully leap to her death? Why did that madman stop chasing me halfway down the hall and start staring wildly up at the ceiling?
Rewarding the steel will
One fun feature to put in a horror-survival game might be to award morale bonuses to either the player or enemy depending on the player's initial reaction. If a monster leaps out of the darkness and the player steps back in response (gives into fear), then morale is given to the monster (or taken from the player). If the player immediately steps forward to face the threat, then morale is awarded to the player's character.
Certainly, this is better suited for sporadic one-on-one encounters than in situations with multiple, simultaneous attacks. But there are probably ways to spin the idea as well.
One of the body's main responses to fear is the pumping of adrenalin, which has three primary effects: (1) vastly increased strength, (2) numbing of pain, and (3) increased perception and reaction time. It's the first and last effect that make adrenalin particularly fit for being a game feature.
A rush of adrenalin slows one's perception of time. Slow-motion cameras work by taking more pictures-per-second than regular cameras. The increased number of photos allows the perceived scene to be stretched out into a slower progression. Adrenalin does the same thing to the brain. It triggers a flood of chemicals to be released in the brain, thereby allowing it to capture experiences in smaller increments... making those experiences seem longer, slower, so the person can react more quickly.
In a game, imagine if dropping below a particular level of health triggered slow-motion, as well as increased strength and speed. Such a feature would not only offer the player one last chance to avoid death, but would also make those dying moments more intense and more memorable.