Reason is a character statistic in World of Horror, and represents the player character's ability to mentally cope with the madness surrounding them. Anything that makes them question their sanity damages their Reason.
Having Reason drop to 9 or below will change the player character's appearance on their portrait, giving them a more haunted look.
If the player character's reason drops to zero, they suffer a mental breakdown and are committed to a mental institution. However, if the combat mode is set to "Last Stand", then, If the character's reason drops to zero during a battle, they will only die when starting a new encounter or dropping below -5 reason. While a character's reason (or stamina) is at zero or lower, their face portrait is covered with black stains, presumably blood.