Here's the situation- you (as long-suffering cameraman Clancy Javis) are trapped in the Processing Area under the Main House. Your goal is to survive until dawn, as wave after wave of enemies appear and try to kill you. There are no collectibles, nor hidden items or weapons of any kind- everything much be purchased with a currency called scrap.
Scrap is generated from trash compactors. You start out with two, and can unlock two more. These machines run more-or-less continuously, so the longer you stay alive, the more scrap you get. They don't run forever, unfortunately. As you reach the end of each 'hour' in the night, the compactors will automatically shut down. They won't restart until you've dispatched all enemies, triggering the next wave.
You can purchase many things with scrap- weapons, ammo, healing, and powerups for yourself and your gear. The general rule is that every time you purchase something, the cost goes up. For example, your first clip of Magnum bullets costs 300 scrap. Buy them again and they're 450. The clip after that is 600 scrap, et cetera.
Every time you play, your score is added to a grand total. The higher that total grows, the more scrap you start with, the more items you can buy. This means every playthrough is step closer to victory, even if you die horribly.
Most items are purchased through a workbench, but traps must be purchased where the trap is (these are set locations- you can't just put a trap anywhere). Like regular items, every time you activate a trap, it becomes more expensive, but it also becomes more effective. At any level, however, they do not activate right away, so try to plan your trap-attacks before the baddies are breathing down your neck.
Likewise, the compactors don't automatically add scrap to your account- you have to go pick it up. The bulk of your time in Nightmare will be spent moving between the compactors, killing enemies as you go. A compactor filled with 1000 scrap will stop producing until its cleared (this limit goes higher as the compactor is upgraded).
And that's the overall shape of things. You goal is to farm the scrap you need to get the weapons necessary to survive the waves of enemies. Those waves are-
Midnight to 1am:
All shamblers. Ideally you will dispatch these with the Knife (which costs 0 scrap, but you still need to purchase it from the workbench). When the Kill All Enemies warning flashes, you'll face a last push of Shamblers and three quad-footed moldies. These can be dispatched with pistol or turret.
With any scrap left over (or using extra scrap you earned through repeated playthroughs), make unlocking the Workshop compactor a priority.
1am to 2am:
More shamblers and few scythers mixed in. When the sirens go, you have to kill Jack, who's wielding his lawn aerator again. He can be slowly knifed to death, but watch out for the swing of his weapon- he doesn't need to be facing you for it to connect. If this too tedious, try mixing it up with shotgun headshots to stun him, and a bit of stabbing to seal the deal.
Remember that, even if you die, your points will help buoy up your next attempt
2am to 3am:
More shamblers and scythers. This round's final encounter is a vomiting Blobula. An upgraded Magnum is ideal for taking him out. If you can nail him while other enemies are near, his explosion might even kill a few of them too.
3am to 4am:
Even more shamblers and scythers, with a few four-footers. Pistol and turret traps are good for taking them out (shotguns aren't bad, but they're slow to switch out).
Final boss is two Blobulas. Try to arrange to be in the Scorpion Key room when they do. If you are, they usually spawn together, at the head of the stairs leading down to the Morgue. Again, bodily explosions can be made to serve you. Note also that Magnum bullets can penetrate multiple enemies, if you can line them up right.
4am to 5am
All types of moldies. The final boss is Jack with his hedgeclippers. It's the final fight of the mode, so go all-out. A mixture of nerve gas traps and the Magnum go well together, but spare scrap can also purchase the grenade launcher and a few rounds. Be very careful about getting too close- even if Clancy has full health upgrades, Jack's scissor-pinch is guaranteed kill.
Still, the more you play, the more you'll have to attack him with, and his demise is essentially guaranteed.
Other Considerations: The Morgue
There's another trash compactor in the Morgue area, but it's expensive to get to (2500 scrap for the second Corrosive). This is another of those delayed gratification tradeoffs in Nightmare mode, but once you're comfortable, opening up the Morgue is well worth the price. Upgrade your compactors at least once first (150% on three compactors beats four regular compactors), but when you do get them all humming togehter, you'll have more scrap than you know what to do with.
The Morgue is also the only really open area in the map, which can make it easier to fight in, and it has its own Workbench and trap spots. While you may want to keep things simple for you survival-based runs, adding in the Morgue is a great way to extend your scrap harvesting and maneuverability.
Other Considerations: Knifing
Since it never needs reloading with costly ammo, the knife is the best way to kill things in Nightmare, but it's also the most dangerous. Even if you became a blademaster in the main game, it's easy to get overwhelmed in Nightmare. One thing that can help is exploiting the many corners in the Processing area- enemies don't deal well with them, and crouching just around a corner from a following foe (at least a bidepedal one) often opens them up for a quick-slashing kill. Also, limb damage seems easier to inflict in Nightmare mode, so you opening slashes may well remove you enemy's ability to counterattack (they still have to spin all the way around to connect with their other arm, and they'll be dead before that happens). A tried & true tactic is to crouch inside the doorway of the Workshop or other defensible room and simply ginsu anything that shambles into range.