The sanity gauge is one of the coolest concepts ever introduced into a game. Every time you encounter an enemy (which all happen to be supernatural monsters like zombies and little gremlin creatures that possess people's bodies) your character's sanity takes damage, causing all kinds of weird shit to happen. If your meter runs out entirely it literally bcomes impossible to tell whether or not the things happening around you are real or imaginary. And many of the effects are genuinely frightening.