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Terrorized is a spell cast by some monsters that reduces the healing capacity of players by 25% (v2.05). There are two ways to see if you are affected by this spell. First, there is a little icon above the "Achievements" icon in the menu bar that appears. Hovering over this icon tells you how many seconds are left before the spell terminates. Second, when you are under this spell, there are little red blobs fluttering above your head. One of the monsters that uses this spell is Aspect of Terror.

The Terrorized icon (v2.05)
Red blobs above the head (v2.05)