It's important not to be confused in this instance. This is a celebration of "horror" games, not horrible ones. The latter would most likely see me rambling on for a lot longer than you'd care to read, with most of the anger vented upon The Lost World game for the PS1. I fear there are still people trapped on the opening screen who, over 10 years on, still haven't worked out that you're playing AS the dinosaur. But that's another story for another time.
There are those who may be under the mistaken belief that the horror genre is new to games, which is somewhat understandable given their rise in the eyes of the mainstream since the "Playstation Generation" began. However, it goes much further back than that, as far even as the old 8-bit home computer days.

Film and Television licenses such as Friday the 13th, and Elvira: Mistress of the Dark fed from their x-rated source material, and produced computer-based images that still have the potential to shock and frighten many today. Let's face it, there's nothing pleasant about seeing a face with its eyes gouged out, regardless of whether it's in High Definition or simple pixels.
Even when it came to the 16-bit era, there were games that liked to splash the crimson on screen, with perhaps Mortal Kombat being the most high profile of these. A 2D beat-em-up, Kombat created controversy upon moving from arcades to consoles due to the gushing levels of blood that followed each strike, and the "Fatality" moves, where the victorious fighter would brutally murder his or her opponent by entering the correct button combo. The use of motion captured actors for the fighters also made the violent action seem more "real".

Fearing a public backlash over this, Nintendo had Midway remove the blood from the Super Nintendo edition of the game, and replaced a number of the fatality moves (including Sub Zero's vicious removal of his opponent's head and spinal column) with toned down ones. Sega were slightly less cautious, choosing to keep the blood and gore in, but requiring players to enter a cheat code in order to access them. It did emerge later that use of an Action Replay cheat cartridge could also put the blood back in the SNES version.
Looking back, the sheer level of the blood that spurted out from even a simple punch seems utterly ridiculous, but in a world where Sonic and Mario still ruled the roost, and even the likes of Street Fighter 2 were still considerably tame and somewhat cartoon-like in their depiction of violence, it was a shock to the system for many.

As we moved further into the 90s, it was the Survival Horror games that began to bring the genre into its own. While the first game in the genre is believed to be Capcom's 1989 NES title Sweet Home, the first to do things in 3D (as cited in the Guinness World Records gamers edition) was the first Alone in the Dark game, which appeared in 1992. This tale of private detective Edward Carnby (and a whole host of sidekicks) investigating strange and spooky goings on has spawned four additional sequels and a (widely panned) movie.