Yes. This campaign revolves around the blackest of blacks and the unknown. Originally borrowed from the Ravenloft campaign setting, Fear, Horror, and Madness have all been adapted and integrated into this campaign. To be put simply, the world is not used to magical and extraordinary events and as such, regardless of the characters upbringing, things outside of the characters perception of “normal” effects them beyond just a mere RP experience.
For the exact ruling on how this works, you can get the information in the Ravenloft campaign setting; however, to sum it all up. Fear, horror, and madness are all will saves vs a specified DC. Player characters are used to magic so while it would apply to most NPC’s, PCs do not. Instead, players make fear checks whenever they are faced with overwhelming odds or are in direct physical danger such as about to fall off a cliff. The examples listed in the Campaign settings are as follows.
• The group is badly outnumbered or outclassed by opponents (EL is 4+ higher than the party level).
• The most powerful character in the group or half of the group’s members are killed.
• A menacing creature is immune to the group’s attacks.
• A menacing creature is at least two size categories larger than the biggest member of the group.
• A menacing creature has the Frightful Presence special attack.
• The character is helpless and threatened by immediate death (trapped underwater, for example).
I want to stress that the campaign is a party game. So, when one player falls to madness or fear, they should not think that they are screwed, instead they should look to their teammates for help.