Psychological horror is horror based on knowledge and situation as opposed to horror based on gore and fright. This is made more explicit in that many horror films are not based on psychological horror using instead "cheap" fright and gore to thrill the audience.
Psychological horror wishes more to scare the reader than disgust. Nevertheless, the disgusting elements are often present in psychological horror and often add to the horror.
Psychological horror isn't only present in movies but also in literature and video games. One of the best examples available is the Silent Hill series for the PlayStation and PlayStation 2 video game consoles.