This is a Playstation 2 videogame but some of its skill in presentation can be borrowed for a horror roleplaying game. Project Zero (Fatal Frame for you Americans) is set in modern times in a lost village hidden deep within a Japanese forest. It utilises the setting to its fullest effect with traditional Japanese architecture meshed with some 1920s technology such as an old film projector that can be used to play old films of the Forbidden Ritual and other creepy scenes in all of sepia's flickering glory.
The faded partitions, warped cupboards, dolls and human-like bulges hidden underneath rugs all give the place a decidedly creepy look. Here and there something will twist, rattle, or fall at opportune moments. Cloth waves gently in hallways, hang from the ceiling and obscure what is in front of you.
The setting is only deepened by the hints of the few ghostly NPC's living days. A little girl with a bell died in one house, hidden in a cupboard and starving to death. Even now, the bell tinkles in certain rooms and when you finally track her down to her cupboard and slide open the door ... well, you do the math. In another cupboard, you hear sobbing and when you look inside you see nothing. Raise the camera and you see black Japanese characters write themselves on the wall and a girl's voice plead for help. Through such scenes the connection between the victims and the houses they died within is made distinct, each component heightening the anxiety of the next until finding a new room is about as nerve-wracking as finding a new ghost.
The complete lack of corpses and sparse use of gore (really just a few bloodstains or broken ghostly bodies) are really unsettling because there is evidence of tremendous violence but it is almost as though the victims were bodily drawn into some abyss or perhaps the corpses were cleaned away by ... something. It's never explained.
The character's active participation in the handling and construction of dangerous items also enhances anticipation. This is shown when Mio - the protagonist - must find and assemble a doll in order to open the door to an underground bridge. Now in this town, every so often a pair of identical twins will be forced to undergo a ritual where one must strangely the other before tossing the dead twin into the void. Now one surviving twin, a very young girl, was very upset and so her father carved her a life-like replica to console her. The little girl treated her doll like a friend and there's evidence that it began speaking back, urging her to kill. This doll was taken apart by her family and must be reassembled by Mio - knowing full well what may happen when she does.
Oh, and by the way, the doll certainly has a creepy scene with the girl and the doll on opposite sides of a hallway and Mio in between. One says "Kill her" and the other says "Don't kill".
Another good device in the game is Mayu. She deepens Mio's character as she has a limp and can't run due to the time Mio she fell down a slope while trying to keep up. Mayu follows you around, gentle and passive, but over time you see the influence of the place slowly corrupt her. Slowly, she becomes possessed by the poorly sacrificed victim who had spilled forth the abyss, a ghost called Sae, but this happens slowly and inexorably. There are several interesting scenes which reveal signs of Sae's growing control as well as her shared clinginess, such as when she asks: "Are you leaving me again, sister?" Mio obviously can't abandon her but nor can she trust her and it's this duality of needs that also makes it very interesting. You can imagine how this might be brought to bear in a horror game where a player is forced to reconcile clashing needs such as safety vs. loyalty.
Sae is the shown to be the ultimate threat. Unharmed by the exorcismal camera (she's invisible when you peer through it at her) and she is able to kill with a touch, so you have to flee her. There is no fighting her until the very end and even then only under the right circumstances. This certainly gives her a fear factor that would have been missing if she'd been like the others. Her painful history also makes her a far more interesting character. She attempted to flee with her twin, Yae, but she slipped down a slope and was recaptured. They couldn't find Yae who left without her (much to her own horror) and so Sae was hung and then thrown into the pit. When she was thrown from the pit, the village was plunged into endless night and Sae took her vengeance on the inhabitants.
To make matters worse, the sacrifices of the twins - as horrible as they are shown to be - are necessary for the village as the dreaded nameless pit (referred to as * in writing) will unleash something horrific if the sacrifices don't occur. Heck, the failed sacrifice of Sae caused enough badness to occur. This is shown through the two endings. The 'bad' ending where you sacrifice your sister and free the village or the 'good' ending where you banish Sae, save your sister, and flee the village to its fate - until some other set of twins are called within it.
It also helps that Mio was a normal girl with the usual vulnerabilities but for the exorcismal camera. She is also driven by the very human urges to find her sister and escape.