Luna is the younger sister of Celestia they both have lived for many years. Luna is the Princess of the Night and tasked with raising and lowering the moon. They both were the former users of the Elements of Harmony to which they used to seal Discord in a stone prison for torturing pegasi, unicorns and earth ponies with his powers over chaos. She represented the elements of Honesty, Laughter, and Loyalty when she originally wielded them. She and Celestia together banished King Sombra for enslaving the Crystal Ponies.
As the years went by Luna grew bitter and angry for her night being shunned by ponies that she refused to lower the moon. Soon her bitterness corrupted her and became "Nightmare Moon". Celestia was a force to use the Elements of Harmony to seal her sister in the moon for a thousand years. Nightmare Moon was freed from her prison on the longest day of the thousandth year during the "Summer Sun Celebration". She continued her plan for creating an everlasting night but was stopped by Twilight Sparkle, Applejack, Fluttershy, Pinkie Pie, Rarity, and Rainbow Dash who used the Elements of Harmony to heal her. After returning to normal, she made amends with her sister and accepted ruling Equestria together.
Due to her being sealed 1000 years she is still adapting to modern customs and still feels discouraged for not being appreciated and still being feared for her time as Nightmare Moon. She has learned to talk softly instead of using the "Royal Canterlot Voice" from Fluttershy and also learned to have fun from Applejack. She has accepted her holiday "Nightmare Night" as what it is and that children enjoy the holiday.
The word "Luna" means "Moon" in Italian and Spanish (in both cases, derived from Latin). The title of the book Twilight Sparkle reads in "Friendship is Magic, Part 1, "The Mare on the Moon," is a joke with the mythical story of man on the moon. According to Lauren Faust, Nightmare Moon was originally called "Discord", a name that would be given to another villain.
The appearance of Princess Luna changed after the first episode. Her body is a shade of darker blue, her mane is partially translucent, undulating, and radiant as Celestia's. Its ancient design is still used in the online game Canterlot Castle, and its old mane is partially visible in some scenes of "Luna Eclipsed". Lauren Faust stated that when Luna is fully grown she does not look like Nightmare Moon. She also stated that when Nightmare Moon was defeated, Luna was reborn with very low levels of magic. In more recent episodes, her mane was magical and undulating again because her good powers had been restored.
A pony based on Luna's design is used in Sweet and Elite. One of the show's layout artists suggested Luna's height and slim body may have been used to give the pony a supermodel appearance.
Although she is in charge of the moon, she is also able to enter and monitor the dreams of ponies as this is part of being Princess of the Night. Only Luna possesses the ability to enter inside the dreams, but it should be noted that Celestia can also lower the moon and was doing such thing when Luna was still imprisoned.
She still has mannerism from a thousand years ago that is learning to develop to the time. She prefers being in the heat of action but will listen to her older sister sometimes. Luna is always willing to help and this can be seen very well when the same helped the Cutie Mark Crusaders in the past during many occasions. Once transformed from Nightmare Moon back to its former form, Princess Luna was sorry and rushes to the side of Celestia, apologizing for what she has done. The two sisters later join the celebration at Ponyville where Luna receives a welcome wreath and looks at her sister with a smile.
Princess Luna is an Alicorn with a vast amount of magical powers who can raise and lower the moon with her magic. Despite this, she is capable of controlling the weather and is capable of shapeshifting. Her unique ability is to enter other ponies dreams. Sometimes she will assist those having nightmares like when Scootaloo was having nightmares. She also visited Sweetie Belle and showed her the consequences of her actions by showing her the past, present, and future in her dreams.
Friendship is Magic pt 1 and 2
Sleepless in Ponyville
Princess Twilight Sparkle pt 1 and 2
For Whom the Sweetie Belle Toils
Bloom and Gloom
Do Princesses Dream of Magic Sheep?
A Hearth's Warming Tale
A Royal Problem