When Silent Hill was being developed, game consoles weren’t powerful enough to show all the objects on the screen at the same time.
The team decided to render only the part of the environment close to the player, which was a great solution, but it had a problem – as the player moved you could see the objects popping up on the screen, which didn’t feel very nice, of course.
That’s how an idea of introducing the fog came around – so that way the player couldn’t see faraway objects being rendered.
Even though gaming consoles got better with time and the fog wasn’t technically needed any more, it was decided to keep it anyway, as it became a defining part of the gaming experience.
Source: Air Entertainment