Have you ever noticed how scary movies can still be scary even when you watch them for the second time? When the slasher takes a swipe at the cheerleader and he juuuust misses her, it can still be a nail-biting moment despite the fact that you know she lives to see the end of the film. It's fascinating to me how we can set aside the things we know and enjoy a story from the inside, following the thoughts and emotions of the characters as we live vicariously through them. They're on an adventure, and we want to come along.
"Survival Horror" is one of those odd, misunderstood genres of games that too often acts as a catch-all for anything spooky or that has zombies in it. Any genre that can contain Dead Space and Silent Hill is a genre with hopelessly vague underpinnings.
Part of the problem is that it's actually two different and conflicting game styles: "Survival" and "Horror." Some games are intended to be about frantic combat, tight resource management, and punishing difficulty. These are survival games. Others are intended to scare, confuse, and disorient the player; to fill them with dread and unease; to disturb them and - in the end - make them feel genuine primal fear. These are horror games. The sad part is that game designers often confuse these two goals and mistake "harder game" with "scarier game."
Fear is a profoundly difficult emotion to squeeze out of a person using a videogame. First, they must be genuinely immersed in the world. Lots of titles have trouble even accomplishing that much. Then you have to reach in and connect with the player, hooking into something that scares them. It takes time to build up this connection to the player and to get them to emotionally invest in the plight of the main character. You can't just put them in control of a generic, faceless avatar and expect them to feel terror when you drop a few zombies on them.
Silent Hill does a good job of not killing immersion by keeping the interface uncluttered. There's no health bar, map, or other interface elements onscreen to remind you "this is just a game." When the screen turns red you think "I'm hurt bad," not "I'm down to 7HP."
Once you build this connection - once you have a player who has stopped thinking about the fact that they're sitting on a couch and holding a controller and is instead feeling as if they actually were inhabiting some baleful ruin, armed only with a bit of pipe and a few shreds of courage - then you need to maintain it as long as possible. You want them to think and act as if they were really there, and so the last thing you want to do as a game designer is kill that mood by killing the main character. Paradoxically, dying makes the game less scary.
I know this sounds odd, and goes against the classic survival-horror formula of springing "gotcha" deaths on the player every ten steps and putting save points ludicrously far apart. But consider these two types of fear:
1) Oh no! I'm going to DIE.
2) Oh no. I'm going to lose the game.