This is probably Guillermo del Toro's best crafted movie to date, a story along the lines of THE DEVIL'S BACKBONE with the special effects of HELLBOY.
During the Spanish Civil War a young girl and her mother go to move in with "The Captain", an evil man the pregnant mother had married to offer her children a better life. It's clear from the start that the man has little regard for the daughter and is only concerned with the impending birth of his son, which is turning out to be a very difficult birth. The girl, however, meets a fairy in the nearby woods and is led to some ancient-looking ruins, where she meets the goat-like faun. He tells her that she is the spirit of the underworld's long lost princess and that she must complete three tasks before the next full-moon. These are not your WITCH & THE WARDROBE type adventures-more more along the line of a nightmare David Lynch would have. First, she must retrieve the key from the stomach of a giant toad that lives in a rotted tree and another time must confront an eye-less eater of babies. But it's the "reality" scenes of the war that are the most disturbing, particularly one in which the captain stitches closed a gaping wound to his face-that made me cringe.
So far PAN'S LABYRINTH is the best horror movie of 2007. I highly recommend it.