Nightmare levels (1-4) work together with the fears on your characters to spawn harder enemies, buff enemies and spawn hazardous tiles.
The higher your nightmare level is the more dreadweavers (enemies) spawn for each combat.

Every time you successfully extract from an area that area's nightmare level meter rises in pressure by the amount of nightmare levels that are active when you extract. Each area has a different pressure to nightmare level ratio.
All other area's lose 1 nightmare pressure to a minimum of 0.
The Crossroads Chapel can lower your nightmare pressure during a run, do note this doesn't carry over to the nightmare pressure already on the map. This will still go up by at least 1 pressure for the specific when completing your run.

Every nightmare level also lays down a heavier "fog" reducing visibility of tiles.*
Visibility of tiles is only for the players perspective, characters are currently unaffected by the visablity.