Paranormal Activity was made for 15,000 dollars. That was in the back of my head the entire time I watched it. Whether that's good or bad, I'm not sure. It does not have the elemental terror of The Blair Witch Project. It is, in some regards, overly amateurish and a little strained.
But it is also relentlessly creative. A good chunk of its runtime is spent using the same camera setup - looking at two people while they sleep. Rarely in a recent horror film has the idea of voyeurism and of bodily vulnerability been so omnipresent.
Director Oren Peli is genius with clever shots. He's a trickster, but he knows how to pull the strings. Paranormal Activity is all about holding back, about creating an environment. Granted, the entire film is predicated on your ability to believe it COULD happen (much like The Exorcist). To detach oneself is to instantly lose interest, and that's largely a major flaw.
It does prey on the idea that we can't see things while we sleep. Paranormal or not, when our body shuts down we're not sure what we're doing. That's ultimately what's so terrifying. Granted, it's never as terrifying or original as it thinks it is, nor is it a satisfying film.
Its advertising calls it "traumatic." Yes, it's about psychological breakdown, but it's about the breakdown of logic. It's about disrupting visual logic, laws of motion and of space, and doing so through "cheap" video equipment. As a small, intimate horror, it works.