Anyone who enjoys watching horror films will agree that even within fans of the genre there are factions. There are people who enjoy the more graphic, bloody horror movies. Some are fans of Natural Horror, that is movies where nature turns against human beings and throws out super-natural creatures and plants to kill and eat us. Some insist that the movie must have a rock solid plot, some are hot for hauntings, and yet others are suckers for "Based on a True Story". Each fan club insists that their kind is the only kind that is worth watching, but producers and studios still continue to populate each sub-genre equally.
The scariest of all these sub-categories is, for obvious reasons, movies that feel real. Movies in which you cannot keep the filter of "It's just a movie" on, and get totally immersed in the story. A lot of films have done justice to this genre.
The Blair Witch Project (1999) changed the game as far as horror movies went. It set many records at the time, including a Guinness World Record for Top Budget: Box Office Ratio- a sleeper hit if there was ever one. Shot over eight days, the film tells the story of three college kids who go into a forest to explore the legend of the Blair Witch and are never heard of again. Only the footage, which is the film, is found. It doesn't get more real than that! The makers worked really hard to make sure that the film felt authentic, keeping the actors in the dark about many things that were going to happen in the woods. This ensured that the reactions were genuine and that much more credible. It also ensured that a lot of people were scared of going near the forest for a long time!
The Japanese and Koreans know horror like nobody else. Some of the creepiest horror movies in Hollywood are re-makes of films in those languages. Most fans of the genre would have at least heard of A Tale of Two Sisters (a Korean film from 2003) and definitely watched The Ring (the Japanese version or the Hollywood one). This film is about a video that leads to the death of all who watch it within a week of viewing it. While the actual film has not been shot realistically, the story is told convincingly enough to make you really iffy about watching the video.
Paranormal Activity (2007) followed in the footsteps of these creepy but brilliant films, taking "found footage" horror to the next level. It is shot to look like CCTV footage of a suburban home, and of course, that enhances the illusion of reality. This film started a movement of sorts, with a multitude of sequels, and similar films being made in other languages, including Hindi (think Ragini MMS).