The Castle of Otranto is often regarded as the first gothic novel, shoveling loads of gothicness with a daft plot and formulaic characters. Horace Walpole consciously attempts to create a new genre by combining the new romance style of eighteenth-century novels and the older tradition of fantastical tales. He also introduces a number of gothic tropes for the first time. There are strange and eerie goings-on, things that go bump in the night, rapacious and predatory men, beautiful and endangered heroines, and a touch of ghostliness. Walpole uses the Shakespearean idea of making the ghost the teller of truth.
However, it's really a case of nice ideas, but a shame about the plot. The story revolves around Manfred, the Lord of the Castle of Otranto, his long-suffering wife Hippolita, his son and heir Conrad (who is killed in the first chapter by an oversized helmet, setting the stage for the whole dreary tale), Conrad's intended Isabella, who becomes the object of Manfred's lascivious intentions once he realizes he is heirless, Matilda, Manfred's daughter, Theodore, a mysterious peasant who keeps popping up at opportune moments and isn't all he seems, Father Jerome, a cleric who also isn't all he seems, Bianca, the comic relief servant (it seems Walpole had read too much Shakespeare!), and finally Frederic, a mysterious knight who turns up to reveal a secret.
As you may have sensed, it didn't really engage me, apart from being an interesting period piece. The plot meanders along, and some loose ends are tied up, with the odd untimely death and the realization that, as always, the rich can get away with murder. While it is groundbreaking, later attempts at gothic literature, such as those by Mary Shelley, are much better.