Thanks in advance
You may also wish to take a look at Darkness & Dread (Legends & Lairs series from FFG) for some additional insight. I especially liked the way they treated Madness...
When I DM'd Ravenloft, I spent a great deal of time showing the players how the evil mindset is the expected way for people to react in various places, and as such good is seen to be the perverted and strange way to act.
It also adds a great deal of strain onto a paladin or other good player when dealing with the people. Are you really going to do your best to fend off the werewolves from attacking that village? Especially if that villiage is filled with nasty, rotten people.
As for big bad nasties. It got to a point in my campaigns when a paladin showed up that the townspeople would chase them away, because everytime a "do-gooder" turned up to fight the evil, something even more nasty showed up to destroy the paladin, with half of the townspeople getting cuahgt in between.
Originally posted by Malus Black
Don't be graphic. It doesn't work. Drops of blood are scary, rivers of blood are disgusting. Let everything be half-seen. If you pull something into the light, it becomes possible to defeat it, and the fear factor evaporates (which is why Alien was far scarier than Aliens). Let the players' minds fill in the details. They can scare themselves far better than you can ever hope to.
Horror is in the details. Every sense must be stimulated, not just sight. Make every shadow threatening, every rosebush a potential cover for evil. The players will be paranoid and cautious, but will still not be prepared when the true threat arrives.
Small, abnormal things works wonders. Perhaps a word or a number repeats itself through the adventure. Nothing obvious, make it seem to be coincidences. Small things, such as a music box playing without being started. Lightning bolts without thunder. But don't overdo it, just keep it in the background, and make sure it ties in with the plot.
Isolation is also a great tool. When there's nowhere to go for help or healing, no one to ask for advice, and nowhere to run, the players become genuinely worried.
Make them care. This is one of the most important ones. They're not in it just for the loot, but they care about the NPCs and their fates. This makes everything more worthwile, and the players are easier to motivate.
Hide the villain. Much as with my first point, never reveal what or who the villain is. Or even if it is a villain. Many ghosts, for instance, are just tragic creatures, bound to their hollow existence by their emotional deaths, not big bads. Maybe they don't even know that they are dead. Also, customize the villain. A classic staple of any Ravenloft game, each character is an individual. Don't let the players know how to defeat the villain unless they research it. Give it special, custom abilities and weaknesses. And not just stat-wise. Make the villain (as well as all the other NPCs) fully realized three-dimensional characters with their own motivations and personality. It will make the villain far more memorable, and also the adventure itself.
And, finally, always remember the why. The what and how are in second line. There must be a reason, or everything falls apart. All little horror techniques must somehow be connected, or they are nothing but cheap tricks, much like the blood and gore we see sprayed across most modern "horror" movies. Remember the why.
Also, read. Read lots of horror books. There's a whole list of them at the end of the RLCS. I'll recommend The Fall of the House of Usher as a must-read, as it's the only book that's ever really scared me.