The phrase expresses an extremely high level of fear, beyond just being scared. Hearing the strange noises at night, he was terrified out of his wits.
Pro Tip 2/3
Hyperbolic Expression
This phrase is usually an exaggeration, not to be taken literally but to stress the fear felt. When the thunderstorm hit, we were frightened out of our wits.
Pro Tip 3/3
Informal Usage
Mostly used in casual conversation or creative writing, not in formal settings. She texted me that she was scared out of her wits during the roller coaster ride.