Fans have suggested:

1. Limited Marketing and exposure
To be frank Fatal Frame's publishers were useless. The series was barely advertised outside Japan and as a result didnt sell as well as Tecmo would have liked. Little information was revealed before each game's release. Few screens were released but did little to show newcomers what the games were about. Japanese trailers were also released in the west which confused people rather than interested them. All in all it did nothing to persuede people to go out and buy the games.If anything it put them off!
Lets hope Nintendo does a better job as the new publishers of FF4.

2. Japanese horror influences
When westerners think of Japanese horror, images of dodgy Hollywood remakes crop up in their minds: The Grudge, One Missed Call and Ring were all movies that were recieved poorly from both critics and moviegoers.So when westerners see screenshots of Fatal Frame's filmy Japanese women inside haunted Japanese mansions fighting off Japanese ghosts they think "not more of that Japanese horror crap". Essentially Hollywood's mediocre interpretations of Asian horror has made it difficult for games based on traditional Japanese horror to make it big in the west.

The problem is that Hollywood has not interpreted such horror accurately. Their focus was on special effects and explaining a Japanese story to an American audience whom they did not think would understand it otherwise.As a result these remakes ended in a convoluted mess of cheesy special effects and simplified plots.
They do not represent the true horror and culture that the original Japanese movies stood for!

But Fatal Frame is made by a Japanese company who are familiar with the Japanese horror culture, themes and nature. These are all used to create what is a frightening experience for the player.Tecmo understand that the horror in Resident Evil might not be scary to everyons so they went in a COMPLETELY different direction.

3. Gameplay
This is where Fatal Frame's biggest problem for being underrated lies. The series' primary weapon is a camera. Survival horror fans might initially be interested in FF's concept but are immediately put off when they realize that there are no "real" weapons in the game.

I recently came across two people discussing the games in a survival horror forum. One member suggested that the other should get the FF games,the other responded with "but it has no guns.How boring!" This is a big problem in the survival horror genre. Gamers don't want to touch survival horrors unless there is a gun or zombies involved. Games like Resident Evil and Silent Hill have "taught" people that action based gameplay is scary and fun. While games that rely more on the survival aspect (such as Fatal Frame) are boring because the gamer cannot shoot or bludgeon things.
Any survival horror game that relies on a different method of gameplay is doomed to fail or forever walk in Resident Evil's shadow.

This can partly be blamed on gamers' inability to research games (the camera might sound ridiculous but its a concept that surprisingly worked) but it can also be blamed on FF's publishers. The camera has never been properly explained to the public. Gamers dont know why a camera is a weapon, or how it works, or what its purpose is, etc. so they percieve it as being "boring" or "weird".
If more gameplay videos explained it thoroughly then more people would be open to the unique idea.