A really weird little game, and I really like it for it's weirdness. I would have liked a bit more sound effects and perhaps some horror music. I would also have liked a bit more gameplay. Overall a fun little unfinished game. Well done.
I don't know if I would incorporate this in a psychological horror game, but some of the same gameplay ideas could be used. The games weirdness and the way the story is told would differently work in a horror game.