Everything is in details that evoke the atmosphere you want. Rules should only peripherally come into it. Carnival in a strange city is a perfect setting. Make sure the celebration starts at night, with bonfires and torches throwing a weak, flickering glow over throngs of masked revelers. Be sure to note that the masks are invariably grotesque, with lewd grins, bulging faces and whatever else you can think of. Mention that people are packing into a plaza to perform a bizarre, bachanalian dance that looks utterly out of control. Weird smells drift out of alleyways and people hoot and caw from behind their masks in a weird language. If the PCs have a guide, have him assure them that the celebration is perfectly normal, but keep dropping ominous hints that the revelers are out of control/senseless and liable to do anything.

Never call a monster by name. Even if it's a low-level mob like Ghouls, just describe it--"an emaciated, beastially hunched figure with fishbelly pale skin, the stink of mud and death surrounding it as it flexes blood-encrusted jaws and lunges at you with catlike speed," and so-on. Don't tell the PCs like "this monster is just about dead," and even when its attacks miss don't tell them by how much, but say things like "its yellow, dirt-spotted claws rake the air just past your face, forcing you back as it presses closer and closer."

That said, don't do the above every single round of combat, or it will just get annoying. Save it for early on in the encounter and give disquieting details like "the thing doesn't seem to notice the deep dash cut in its side" every so often.

Hope that helps.