When you start the game, you are presented with three different corridors, providing the difficulty level; walk through the teleporter on the far end of the hall to set the skill level. You need to jump over lava to reach the hard difficulty, which isn't too hard.
Next, you select one of four episodes from the corridors presented. They can be completed in any order; you will start with a shotgun and 25 shells when you enter the appropriate slipgate at the end of each corridor.
Even when you completed the game on Hard, there's still one more difficulty level. To reach nightmare, enter the corridor for Episode 4 and jump in the water. Swim backward until you touch the wall behind you (and not just the rim on the surface) and sink down. Head to the corridor to your left, and enter the orange coloured teleporter.