The term "Grim and Gritty" is bandied about a fair bit in the discussion of games and settings. What it describes, though, seems to vary. Sometimes I hear talk of grim-n-gritty games (lets call them GnG) or GnG settings, but when described they don't seem particularly GnG to me. That may be because I have an odd perception of GnG, so I decided to try to boil down a good description of what GnG describes to me.
To me, GnG has four major aspects: the world is a dirty, dangerous place; there are no white hats and no black hats, it's all shades of grey; fighting is not a good idea and very dangerous; and the tone of the game is serious, even if the characters are not.
And what does that mean?
1) It ain't pretty
This isn't a golden age. The world doesn't live together in harmony. If there is a powerful empire, it's on the wane, with the corrupt bureaucrats running the show. If there ever was a magical age when people's lives were easy, that's long since past. There's crime, disease, and poverty, and they are all common. Too common. There is wealth, but it's held by a very small portion of the population. That same small portion of the population has the power, and they aren't very concerned about the “common good.” If a compassionate humanitarian ever got to power and began to actually help the poor and downtrodden, the rest of the power elite would eliminate him or her very quickly—at least they would try. And the mob—the vast majority of the common people, that organic eruption of groupthink among the urban poor—is fickle at best, ready to believe any lie and forgive any fault, as long as the bread and circuses keep coming.
2) This isn't a nice place
Morality is not clear cut good and evil, black and white, or chaos and law depending on your cup of grog. The villains are not irredeemably evil—they have positive aspects. The heroes may not be anywhere close to good, but even if they consider themselves good, it's not the absolute, do no wrong good or even philosophically inclined good of an alignment system. If I have a character who is an adherent to a church that is considered good, a character who is devoted to his family, gives to the poor, and helps the poor farmers fight off the bandits, society likely sees him as good. When his church directs him to raze the village of the heretics, to the last man, woman and child, he might have some cultural qualms about the deaths of children, maybe even women, but he'll likely be willing to spit those heretic men on pikes, whether they offer resistance or have committed an actual crime or not. This same character might assassinate a leading figure in the church in order to help increase the prestige of his own faction. That doesn't mean he's evil, because in a GNG campaign, that term just doesn't really apply.
3) That's gotta hurt.
A GnG campaign can be heroic, but not mythic. Heroes are tough and skilled, but they cannot face waves of enemies and mow them down like scythes. Getting into a fight is always a risky proposition. Any weapon can pose a threat, any enemy might get in a lucky strike to incapacitate or kill a hero. Because of this, one simply doesn't jump into combat, unless one is extremely certain of one's capabilities. Even Conan had moments of doubt when faced with tough or numerous adversaries. Discretion is—by far—the better part of valour. And when one gets hurt, it takes time to heal. In the end, combat is often necessary, but in a GnG campaign, characters will try to find some kind of edge, any kind of edge.
4) This ain't no party, this ain't no disco, this ain't no foolin' around.
The characters in a GnG campaign might be funny, even silly, but the world around them is not. A GnG setting is not a parody, it's serious—deadly serious. Any element of humour comes from the characters in the setting. This is not to say there is no laughter in a GnG campaign, there might be lots of it. Very often, faced with the daily realities of a grim world, people develop a sense of humour as a coping mechanism. The players might even decide on courses of action more in keeping with the Search for the Holy Grail rather than Excalibur, but that does not change the setting. While their actions might be silly, the consequences and reactions remain serious.
With these elements, I believe one can create and maintain a GnG setting. One thing is important: both the players and the GM must want a GnG setting. If the GM wants to play GnG, but the players do not, they are not going to enjoy the game. The reverse also applies. However, if both want a good, solid GnG game, putting these precepts in place, and maintaining them should help to keep that GnG spirit.
However, the most important aspect of running a GnG game is the atmosphere created by the GM and the players. The GM needs to invest the setting with the feel of a dark and dangerous place in which the frivolous pay a terrible price. The players also need to ensure that their characters fit into such a setting. That is not to say a character could not play a manic jester, but unless that manic jester is actually insane, the character is aware of the consequences of certain actions in that world, and the player should not be surprised or upset if the character reaps what has been sown.