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In games of the Silent Hill series, fog was used equally to create an atmospheric element, and because of hardware limitations. There have been times in Silent Hill games where you were forced to walk through an open foggy area, with your radio creating static noise to let you know monsters were around, but the fog limiting your view so you never knew exactly where they were. (Shown to the right.)
It also can be used to change the way a player navigates an area or even the way a game is played. In games in the SOCOM series, distance fog was used as a way to stay hidden at a distance while using sniper rifles to create an effect know as "shadow sniping." As they were hidden in the fog, far away from other players, all you could see was a shadow in the shape of another player. It also could be used as a way to navigate throughout the maps, out of the line of sights of the unsuspecting player. This was, however, changed in the Playstation 3's first SOCOM game, titled " SOCOM: Confrontation."
Sometimes Fog is used to make objects in the distance fade in more naturally when there are technical limitations, hiding the clipping which is actually happening behind the Fog. This is best shown in games like The Elder Scrolls III: Morrowind.