I think we're reading it correctly when the card says to 'raise' the terror track by one if a monster goes back in the cup. I think that means increase by 1.

But wouldn't the citizens be less terrorized by the tremors ceasing and a monster leaving town?

Yes, it means "increase by 1." Maybe the citizens reel in shock as they begin to piece together what caused the strange tremors, and that the sightings of slimy, worm-like "things" were actually real and not illusions...

Yeah, it's part of a series of headline mythos cards, some of which make more sense than others: for example, "Scientist Warns of Dimensional Rift!" does the same thing with Shamblers and Hounds, "Bizarre Dreams Plague Citizens!" is Gugs and Nightgaunts, and "Goat-like Creature Spotted in Woods!" is Dark Young.

I generally interpret it to mean that the tremors caused by nearby Dholes and Chthonians just tend to be a lot stranger and more terrifying than your normal garden variety strange tremors.