Very little is known about the storyline of Silent Hill 2. Early reports from Konami have indicated that the story does take place in Silent Hill, and that it is not directly related (and may not be at all related) to the events of the first game. Here's a paraphrased version of the brief synopsis put out by Konami:

James Sanderland's wife passed away three years ago. However, James receives a letter from her indicating that she wants to meet him at a resort in Silent Hill, a place he once promised to take her to. Once James arrives in Silent Hill, he meets a woman named Maria who bears an eerie resemblance to his late wife.

Then some other stuff happens, I guess, which include demonic nurse-monsters and various other unpleasantness. Hopefully, Konami will be giving fans a lot more information about the game at the upcoming Tokyo Game Show 2000. As soon as more is known, look for an update here.