As others have said, its all about making the setting seem believable and then immersing your characters into it.
During one campaign I was running, it was the middle of the winter and the sun was setting. The party of 4 had no real shelter from the elements (and no casters to help) so in the distance they saw a somewhat run down small castle. When they got there and knocked they were greeted with a tall man (servant) who would soon introduce them them to Lady Lavinia.
The interior looked nice but unkept. Lots of dirt and dust, but otherwise intact. She invited them for dinner and during they learned that she was widowed and that her only child had also died around the same time as her husband. She then invited them to stay until the sun warmed it out enough to continue their travel.
At this point the group felt safe. This is where I pulled out what I called "The Shining" effect on them.
One of the players awoke with nightmares and woke up the other person in his room. They decided to get up and walk around. When they got back downstairs things didn't seem the same. After a perception check they realized that the furniture in the room they were in earlier was in shambles. The dining room where they ate was covered in blood and bits of who knew what. Upon entering the kitchen they noticed two merchants who have been missing from another town they visited were on the butcher block (and they assumed that is what they ate for dinner the night before). At this point one of the players serious started to feel sickened by the whole idea of the scene.
They heard someone coming and hid in another room (and passed their sneak and hide checks) where they saw two skeletal feet pass by in the light under the door.
Eventually they woke up everyone and investigated the house, finding a secret entrance that had stair ways up to the 2nd floor and down into a basement. They split up, two going up and two going down. Upstairs they found Lady Lavinia's room, and on one of the walls was a curio cabinet filled with poppets, but they didn't look normal. The almost looked like they were stitched together out of flesh. Freaked out they went down stairs only to find out the two that went down were missing (Lady Lavinia, who was actually a witch that was carrying around a poppet made from her babies flesh and bones) captured them and had them in hidden cells.
Eventually they escaped into an underground chapel where she had pews lined up of all the dead merchants, travelers and other unlucky souls that had come upon her castle. At one point they all animated into zombies, which the group fought their way out from.
They finally got out of the castle, but as they were leaving one of the characters (a npc monk I was running) sacrificed himself to save the rest of the group.
At the end of it all, every one of my players said it was one of the most surreal gaming experiences they ever had. It was one of the guys 2nd time playing only, and he has came to every gaming session since.
I have tried to relive the same level of immersion since then but haven't come close to that night.