In the dark of course.
It's not nearly as scary during daytime when there's bright, birds are singing and kids playing outside etc. hahah. At least I feel like losing something essential when watching horror movies or playing horror games in well lit or noisy places.
I don't also like playing them with someone else, since usually that someone seems to forget how to be quiet. The atmosphere is constantly breaking if a friend keeps whispering "What's gonna happen next? Where is the monster? Is it there where you're going? Well is it??! Tell meee!"