I wasn't talking about intimidation, Parker. The fear would appear in the aftermath, after the camel spider (which technically isn't a spider at all) is long gone. It wouldn't kill, but leave very clear and frightening wounds.
Besides, they have human hosts, too. And a bug that burrows beneath your skin would be frightening to anyone, terrestrial or alien alike. . . . Granted it's a bit like the Yeerks themselves (only Yeerks don't have disporportionate-looking black fangs like botfly larvae). Yes, they're aliens, but that only means that they're more ignorant of the large dangers some insects can provide.
True, botflys may not be able to penetrate Hork-Bajir hide, but human, Gedd, Andalite, Taxxon, or even Yeerks? Sure. I know I don't wanna feel something crawling around under my skin. It's been pretty much confirmed that you could kill a Taxxon with a can opener, so they obviously have thinner skin than a human, so who's to say a camel spider or any other arthropod of reasonable size wouldn't be able to kill a Taxxon?
The terror doesn't come from the actual insect itself, but at what it can do.