Drathnoxis said:
I don't know, maybe it implements it in a new and interesting way, I haven't really looked at the game much, but it still seems kind of odd.
'Sanity' primarily affects the usability of the game's UI. Specifically, as your sanity dwindles, buttons on the game's UI will periodically flash "Kill yourself", which equals an instant game over if you happen to click the button at the wrong time.
The more your sanity goes down, the more frequent and persistent these "Kill yourself" flashes become.
(As an aside, the whole "Kill yourself" thing is probably the reason why the game was rejected by GoG.)