This is one you might get just playing along. I wouldn't spend too much time getting this, especially if you start using the Path of Nightmares costume later in the game, which causes people to get terrified just from finding bodies or seeing you stealth kill. Remember that if you don't get this in your first playthrough, you still have an entire New Game + mode to try for it.
I found that the easiest way to terrify a guard without getting spotted was the Ravenous Insects. If you see three guards standing anywhere near each other, toss the insects onto the middle one. He screams, the other two look at him and become terrified and start shooting. This nearly always results in one guard's death, and this achievement.
If a guard is terrified and shooting the wrong direction, just jump behind him and run for a couple of steps to draw his attention the proper direction. Make sure you have an escape route planned - he'll turn around shooting.
If you want a step-by-step guide, there's a good spot in Level 6 ("An Ancestral Home"). Minor spoilers, if you're extremely sensitive to that sort of thing:
*** Spoiler - click to reveal ***
You'll want spike mines for this. Toward the end of the level, you'll enter the catacombs. You'll be trying to obtain a seal for killing all seven guards in the catacombs with stealth kills. After you've killed four guards, the last three are together in a room that you open by breaking a machine. This is where you'll need that spike mine. Throw it down right at the machine, then break the machine and go up to hide. The first guard will be killed and terrify the other two; inevitably one will kill the other and you'll pop this achievement. Unfortunately this does not count as a stealth kill, so you'll need to reset your checkpoint and do this again with a different technique if you're going for the stealth-kill seal. The checkpoint is right before those three guys, though, so no harm done.