It's been a while since I played Amnesia so I might not remember correctly and it's kinda hard to explain, but i'll try. There is a "shadow" following Daniel. The red goo is produced by the shadow and the stuff appears more frequently when it's getting closer. It has many purposes in terms of gameplay. It can block pathways and since it hurts to step on it, it can make moving around a bit trickier. A bunch of the stuff starts to appear everywhere around you in some escape sequences.
