Is this normal or a glitch? When things fade into the distant fog, the fogged part of them is often pink. Especially buildings.

Unless it's your graphics card or drivers, it's likely to be a bug of Daggerfall..
Is the effect persistent? This means, does it remain when you exit and restart Daggerfall (or your PC)? Is it still there when you save the game and reload it (but don't overwrite an important older save game to test this)?
Is it there when you load an older save game?

Strange things are defined differently by different people. It is hard to say anything without seeing screenshot of fog in question.

Hi, this picture shows what I mean.

When I am in any town, regardless of weather or environment, if I slowly walk forward, the moment a building draws it is grey/white at the very limit of view, then if I take a step forwards, it turns pink, then if I take another step forwards, it is its normal colour.

In this case, there is a tan coloured house in the middle of the view. On the left you see it greyed out as it draws for the first time at the limit of my view, then immediately as I walk forward, it turns pink. Different monitors can display colours differently, but on my screen it is very pink. Then on the right is what the building normally looks like, the moment I take another step closer.

Most buildings seem to be doing this. I used to play Daggerfall a lot years ago, and I can't remember ever seeing anything like this... It doesn't ruin the gameplay, I just thought it was an unusual thing.

I should note as well, that if objects are a lot closer, in fog, it goes from being white to grey to natural colour, without turning pink. It only turns pink when it is at a real distance.

That looks abnormal to me. I do not remember any pink buildings when I played. It looks almost like the building has started to pop in but the texture for that wall hasn't loaded yet; in the pink version i see the shape of the notch at the top but not the doorway etc.

Not sure how to fix it. Any chance you are playing on a laptop where you can try using the other graphics adapter?

I remember seeing similar thing in Arena (non-GOG version). In fact, I remember Arena crashing in all the pink colors (it happened often after leaving 1st dungeon, unpatched Arena was very unstable) XD

Does this fog happen in all the cities or just in some particular cities?

it happens in every city I've been to so far. I'm running it on a desktop computer. I have a gtx 560 ti nvidia graphics card. I might try tinkering with some of the nvidia control panel settings, and see if that makes a difference, because sometimes it does. I often change the nvidia control panel settings when playing newer games to improve the graphics. Oblivion for example looks great with 32x anti aliasing and 16x anisotropic filtering.

Edit:
Here's another clip from a screenshot. I worked out it is a shade of grey. That single rgb shade of grey is pink. If I look at the ground, and that colour is used, the ground is pink at that location. I think I'll just keep playing as it is. I'm getting used to it now. Nvidia settings didn't change a thing.

I think these are all graphics glitches of the Daggerfall software. Ignore them if you can.
As you are a role-player (evident from another of your posts), you could assume that your character is on LSD or has an eye problem. :-)