I can see why FF2 is a lot of people's favorite, I think it has the best setting and pacing in the series and something I'll call, "Artistic Horror" elements. Artistic Horror is something to me that is visually interesting with symbolic and dark tones, Fatal Frame 2 uses this to great effect with its titular "Crimson Butterfly", which has some fun multi-layered meaning that's reflective in the game, plus is simply an interesting piece of imagery. FF2 has this in various other elements such as the graveyard with pinwheels, the doll maker's house, the island house with the raining outdoor stairway, etc. I do think FF2 benefits from having less back-tracking/retreading and padding than the later entries and even the first entry, and the sort of open form of the village is memorable. Add to this I do think FF2's antagonist is a bit overall creepier than FF3's and some of the ghost in FF2 are memorable, like the twin with the doll sister or the broken neck ghost. Also frankly Fatal Frame 2 I think is the most 'accessible' entry in the franchise, the ghost are a LOT more fair than FF1 (there were some sort of cheap ghost in the original), and the game is notably also the easiest entry and most forgiving with items (no joke, I finished Fatal Frame 2 my first time playing ever with over 50 herbal medicines). I also don't dislike FF2's story, but I think it's a bit straight-forward. It explores its themes interestingly and I view it as a story that builds to its conclusion, but it doesn't really have much in the way of surprise or anything. Maybe this is just me, but I had guessed exactly where every story element in the game was going within the first 10 minutes of the game, even the fate and being of all the characters in the game, but I view it that surprise wasn't the point, more the exploration of its themes.
And I realize this is subjective, but I think FF3 is my favorite for a few reasons. I think FF3 sort of hones in on the theme of the whole franchise the best and with the most impact; the tragedy of death. It brings back the characters from FF1 and FF2 and shows the aftermath of those games, exploring how just surviving a horrific experience doesn't mean it's over for you and how the scars it leaves can still affect you long after. It's very rare for a game to explore how the events of games previous may negatively affect the characters in the future, Resident Evil for example has the characters get stronger and most other franchises tackle returning characters in a more favored light, but FF3 highlights the tragedy of their experiences and the heart of the curse of Fatal Frame is focused on that loss and the effects of traumatic experiences. More than the other entries FF3 captures a depressingly somber tone, getting caught in a period of your life where things come to a standstill. And then of course as most people will remember it feverishly degrades the depressive into creepy as the house deteriorates slowly with the state of our character.
Rei is different than most FF protagonist. She's not a teen nor does she come off as fragile as the leads in FF games usually do, but a broken women in her 20s. She isn't as frilly as Miku or Mio, and as we get to see her a lot more outside of the horror context there's a greater understanding of who she is, where she's coming from, and it becomes a more personal experience. Fatal Frame 1 & 2 the depth of the main characters is about saving a loved one, for Miku her brother and Mio her twin sister. Miku has little personality in the original game (to help insert you a bit more into the role), and FF2 Mio is overtly focused on Miyu we don't get much from her character outside of her being the more capable and stronger of the two siblings who watches out for the other. FF3 not only fleshes out Miku a lot more as a character, but Rei despite having had a loved one also loses them, we delve into her hobbies, what she aspired to, what she lost outside of her fiance, her history, and her personality and interaction with others.
And Rei is not the only fleshed out thing, FF1 & FF2 focus more on the location hauntings for the majority of the plot. Fatal Frame 3 takes place in a location that's been lost to time, what remains is a memory, a dream version of a location that no longer exists, holding its spirits in a state of limbo. It's a place that reaches out to those being consumed by their depression from loss and pulls them into the dream, but it begins to mark and affect the real world. It corrupts the area around those who are marked with a tattoo for their scars, and the story of why this place exists I think is a lot more interesting than the mansion of FF1 or the lost village of FF2. The citizens of the house are explored and made more human due to the focus on tragedy, the main antagonist has a lot more depth as well than either FF1's or FF2's antagonist (FF1's main villain was a heartbroken maiden who sacrificed herself, FF2's main villain was a crazed sister who was yandere for her sister).
And even outside of the house hauntings, FF3's actual haunting location I think manages to be the best. The gameplay in Fatal Frame 3 enhances FF2's system with a few additions and more varied enemy types, but it also differs itself with what character you're playing as. Fatal Frame 3 has you play as Miku and Kei at different points which alter in how they play exactly, with Kei being more defenseless and Miku having some quirks that makes her play more like herself in FF1 (even with changes to the combat to reflect FF1 a bit more). Fatal Frame 3 has a number of great moments to supplement this, ranging from the chapter where you deal with the four singing shrine maidens to the famous crawlspace scene, to the ghost that comes out of film, or what is in my opinion the greatest climax the series has had when you go down to the underground river. Has the best final boss in the franchise as well.
Fatal Frame 1 & 2 have you repeating the same puzzles over and over again, while FF3 has more varied and interesting puzzles. FF3 has a number of great hidden and optional scenes you can stumble into, like the room under the stairs that's usually locked which is mysteriously unlocked for one part of the game and what it leads to or what happens when you play as Miku when you don't go after Mafuyu. I think FF3 captures some of the best parts of FF1 and FF2 in the parts where you go to rooms from the previous games but graphically updated, and it highlights how different parts of this dream manor are being added to by the scars of those that came before (and begins to make you realize what certain parts of the house mean with some hidden symbolism, making the environments related to the ghost there). It's unlockable battle game mode is also a big improvement from the previous entries.
I should cut off before I turn this more long-winded than it already is, but for me Fatal Frame 3 was where the series peaked. I think FF2 does some things better than FF3, but I adored the hell out of the third entry and have found it more interesting to replay than FF2 at least.
