The key elements often include a sense of unease and dread. For example, an unreliable narrator can make the reader constantly question what's real. Creepy settings like an old, abandoned house add to the horror. Also, psychological manipulation of the characters, such as gaslighting, is common. Subtle foreshadowing that makes the reader anticipate something bad is another element.
One idea could be a person who wakes up every day to find that their memories are slowly being erased. They start to see strange symbols around their house that seem to be related to the memory loss. As they try to figure out what's going on, they realize that there's a shadowy figure in the corner of their vision that disappears whenever they turn to look directly at it.
The loss of sanity is a big one too. Characters in short psychological horror stories often start to question their own minds. They might see things that aren't there or lose their grip on reality, like in 'The Strange Case of Dr. Jekyll and Mr. Hyde'. Dr. Jekyll's experiments lead to the creation of Mr. Hyde, and as he tries to control it, he slowly loses his sanity.
Isolation is a common theme. For example, in many stories the protagonist is cut off from the outside world, like in 'The Yellow Wallpaper'. Another theme is the loss of sanity, as seen in 'The Tell - Tale Heart'.
Imagine a person who receives a series of anonymous letters. The letters contain details about their deepest, darkest secrets that no one else should know. As they try to find out who is sending the letters, they start to feel like they are being constantly watched. Everywhere they go, they sense an unseen presence. Their paranoia grows as the letters become more and more threatening, until they are afraid to leave their own home.
Basically, a psychological horror story focuses on the psychological and emotional states of the characters and the audience. It creates tension and fear through psychological manipulation, like building suspense, creating paranoia, and exploring deep-seated traumas.
Use suspense. Build it up slowly by dropping hints and keeping the reader guessing. For example, don't reveal the true nature of the horror right away.
Another is 'The Monkey's Paw'. A family is given a magical monkey's paw that can grant wishes. But every wish comes with a horrible consequence. Their first wish for money results in their son's death at work, and his body is mangled. It's a terrifying look at the unexpected and often dark outcomes of getting what we think we want.