Paranormal Activity takes the raggedy hand-held experience of Cloverfield and brings it indoors, managing to make a large three-bedroom house seem tight and claustrophobic. The premise is that Katie and Micah have just moved in together, when Katie starts having nightmares about a presence that stands at the foot of her bed. Micah is more interested than frightened by this, especially when he finds out that she's been having this dream since she was eight. He sets out to record the experience with his new camera.
The suspense builds through the course of the film, stringing tension out taught. But what makes this film work is its realism. The characters aren't Hollywood pretty, and they engage in petty, stupid squabbles. They're flawed, but you can tell that they care about each other. There are some good scares and a couple of surprises, but this is more of a suspense film than a horror flick.
The DVD comes with an alternate ending. I prefer the original.