Certain things that characters experience may be so alien, twisted, and terrible that they go beyond simple fear and instead threaten a character's very sanity.
Sanity damage can be caused by a variety of things. By encountering alien creatures, miscasting spells, or being subject to other effects, the character may be subject to Sanity damage. Sanity damage is handled in much the same way as Physical damage, except sanity points are marked against, and there are no direct penalties associated with having low sanity.
When a character loses Sanity, he will have to check for Sanity Shock. If a character is particularly low on Sanity, he may have to test for Temporary Insanity, or possibly gain Derangement if his Sanity is finally drained.