Terror is being afraid of the unseen.
Horror is being afraid of the seen.
Generally-speaking, Terror is always worse than horror because Terror is fueled by one's imagination. If one does not have an imagination, on the other hand, then horror may be far worse.
For example, the short story "The Monkey's Paw" by W.W. Jacobs uses the unseen to create a feeling of dread in the reader. The monkey's paw is a monkey's hand that grants the owner three wishes. The wishes are always granted but often not the way the wisher had hoped. Here's the climax of the short story:
He went down in the darkness, and felt his way to the parlor, and then to the mantelpiece. The talisman was in its place, and a horrible fear that the unspoken wish might bring his mutilated son before him ere he could escape from the room seized upon him, and he caught his breath as he found that he had lost the direction of the door. His brow cold with sweat, he felt his way around the table, and groped along the wall until he found himself in the small passage with the unwholesome thing in his hand.
Even his wife's face seemed changed as he entered the room. It was white and expectant, and to his fears seemed to have an unnatural look upon it. He was afraid of her.
"Wish!" she cried, in a strong voice.
"It is foolish and wicked," he faltered.
"Wish!" repeated his wife.
He raised his hand. "I wish my son alive again."
The talisman fell to the floor, and he regarded it shudderingly. Then he sank trembling into a chair as the old woman, with burning eyes, walked to the window and raised the blind.
He sat until he was chilled with the cold, glancing occasionally at the figure of the old woman peering through the window. The candle end, which had burned below the rim of the china candlestick, was throwing pulsating shadows on the ceiling and walls, until, with a flicker larger than the rest, it expired. The old man, with an unspeakable sense of relief at the failure of the talisman, crept back to his bed, and a minute or two afterward the old woman came silently and apathetically beside him.
Neither spoke, but both lay silently listening to the ticking of the clock. A stair creaked, and a squeaky mouse scurried noisily through the wall. The darkness was oppressive, and after lying for some time screwing up his courage, the husband took the box of matches, and striking one, went downstairs for a candle.
At the foot of the stairs the match went out, and he paused to strike another, and at the same moment a knock, so quiet and stealthy as to be scarcely audible, sounded on the front door.
The matches fell from his hand. He stood motionless, his breath suspended until the knock was repeated. Then he turned and fled swiftly back to his room, and closed the door behind him. A third knock sounded through the house.
"What's that?" cried the old woman, starting up.
"A rat," said the old man, in shaking tones, "a rat. It passed me on the stairs."
His wife sat up in bed listening. A loud knock resounded through the house.
"It's Herbert!" she screamed. "It's Herbert!"
She ran to the door, but her husband was before her, and catching her by the arm, held her tightly.
"What are you going to do?" he whispered hoarsely.
"It's my boy; it's Herbert!" she cried, struggling mechanically. "I forgot it was two miles away. What are you holding me for? Let go. I must open the door."
"For God's sake don't let it in," cried the old man, trembling.
"You're afraid of your own son," she cried, struggling. "Let me go. I'm coming, Herbert; I'm coming."
There was another knock, and another. The old woman with a sudden wrench broke free and ran from the room. Her husband followed to the landing, and called after her appealingly as she hurried downstairs. He heard the chain rattle back and the bottom bolt drawn slowly and stiffly from the socket. Then the old woman's voice, strained and panting.
"The bolt," she cried loudly. "Come down. I can't reach it."
But her husband was on his hands and knees groping wildly on the floor in search of the paw. If he could only find it before the thing outside got in. A perfect fusillade of knocks reverberated through the house, and he heard the scraping of a chair as his wife put it down in the passage against the door. He heard the creaking of the bolt as it came slowly back, and at the same moment, he found the monkey's paw, and frantically breathed his third and last wish.
The knocking ceased suddenly, although the echoes of it were still in the house. He heard the chair drawn back and the door opened. A cold wind rushed up the staircase, and a long, loud wail of disappointment and misery from his wife gave him courage to run down to her side, and then to the gate beyond. The streetlamp flickering opposite shone on a quiet and deserted road.