I'm a huge H.P. Lovecraft fan, not because his writing is particularly elegant or that his style and execution are amazing. In actual fact, Lovecraft's writing is significantly flawed and it is these flaws, in part, that lend his work some of it's charm. That isn't to say that it's bad however, in fact sometimes his descriptions border on the (disturbingly) poetic.
He often writes in the form of fictional journals or correspondence, which is perhaps better known in Romantic Literature where good horror examples include both Bram Stoker's Dracula and Mary Shelley's Frankenstein. This I think allows us to forgive his heavy handed use of very direct exposition, a key device in describing the indescribable horrors of forbidden knowledge and unknowably ancient deities.
Part of the appeal has to be Lovecraft's use of real science. He studied history and biology (if only as an amateur in some instances) and this informs the mythology. While not always accurate (as with his understanding of non-euclidean geometry) it lends a sense of realism that is uncommon in pulp fantasy and science fiction.
I'm not alone, and particularly in 'nerdy' circles Lovecraft's signature ancient and often be-tentacled horrors are popular, well-loved and re-appropriated. One of my favourite Characters, Hellboy, is often set against Cthulean terrors, and was even up against what are strikingly alike to the Elder Gods in his movie debut.
The actual horror however comes from the unknown. We've all watched TV shows or movies where the tension builds for as long as the monster remains just of screen and out of sight and is completely dispelled when you see them on screen. I Am Legend starring Will Smith is a good example for me where Robert Neville's genuinely disturbing and terrified descent into madness is ruined by the revelation of hilarious rubber-faced zombies.
Much of Lovecraft's horror goes without description, or with description so subjective to the narrator and influenced by creatures so alien to our daily existence that we struggle to truly envision their repugnant countenance. Lovecraft's fascination with biology and the fossil record lend a distinct deep-ocean theme to many of his descriptions (some more blatant than others) and it may be this aspect of his writing that has best permeated the geek zeitgeist. From World of Warcraft's Murlocs, which are Deep One's by another name to the deified Architeuthis Colosso of China Mieville's Kraken and the innumerable pseudo-sexual tentacle-creatures of popular anime, these unusual and slightly creepy creatures have become a focus of popular science fiction, fantasy and horror.
Perhaps ironically, many expeditions (via remotely operated submersible) into the deep ocean have turned up creatures perhaps more bizarre in some instances than any Mi-Go or Star-Spawn, and it is this radical difference from our own experience of the life around us that both captures our imagination and makes our skin crawl.