Why is Silent Hill covered in fog?

There are two true answers, and they stack. The hardware answer first: the original PlayStation could not render Silent Hill's fully 3D town at any distance without straining and popping scenery in and out of view. Fog and darkness capped what the player could see, and the machine only had to build what was close.

The men who made it said so themselves. Producers Akihiro Imamura and Akira Yamaoka laid it out in their Game Developer postmortem (March 2005): the murk began as a solution to a hardware limit.

But the design answer is why it lasted. Interviews with director Keiichiro Toyama from March 1999, in PSM and the Official U.S. PlayStation Magazine, show a team deliberately building an unsettling, ordinary American town, writing a lighting engine for it, and designing a roaming camera to disorient the player. The fog was a fix the designers refused to waste: they tuned it, thickened it, and turned a rendering limit into the town's defining personality.