Equestria is a world filled with creatures fantastical. The most inherently powerful of these are Daemons and Nightmares.
The term 'Daemon' is a slight misnomer and carries with it a negative connotation that is not necessarily accurate. Daemons are not by nature good nor evil, rather they are beings possessed of four distinct qualities: Immortality, Power, Physicality, and a Domain.
Daemons are immortal. Though it is possible for them to be born, and indeed many are of varying ages, once a Daemon comes into the world it exists in perpetuity. Though they are bound to a single physical body that can be damaged and destroyed, doing so would only be a temporary measure as it would reform no matter the situation.
A Daemon is also, by its very nature, in command of magicks far in excess of those available to lesser mortals. These powers very greatly from Daemon to Daemon, but all are forces to be reckoned with. The powers and magicks available to a Daemon is based heavily upon its nature and domain.
The third quality that defines a Daemon is its persistent physical body. Despite their nearly god like power and immortality, Daemons are limited to a physical body that serves to highlight its domain. Every Daemon is unique unto itself in both form and function. This immutable aspect of their nature is the only limiting factor that prevents them from truly being gods. Having a persistent physical body prevents Daemons from being either omnipotent or omnipresent.
(It should be noted that some Daemons are capable of creating copies of themselves and altering their bodies, but these are temporary at best. To maintain such changes requires exponential concentration and a usage of power to the extent that such tactics verge on complete impracticality.)
Finally, Daemons represent a domain or concept. A Daemon's domain is its supreme defining attribute from which all of its aspects originate. Daemons physically, emotionally, and mentally embody their domain. They exist to serve their domain, spreading it across Equis with their every breath. Despite this, their power does not wax and wane as their domain takes or loses hold. Rather, the degree to which a concept is believed in (if not sought after) is the factor by which a Daemon's power expands and retracts. Certain Daemons are therefore more permanently entrenched than others.
One of the most powerful and well known of the Daemons is Discord. Representing Chaos and Entropy, Discord's powers are neigh on inexhaustible. The reason for this is simple, Chaos is an inescapable, and arguably necessary, part of life: constant and inevitable.
Composed of a conglomeration of species, Discord's very appearance is unmistakeable. Due to his domain, both the domain itself and the power it grants, cloning and shape changing are as simple for Discord as snapping his talon. However, even he is bound to his natural form. Indeed his defeats have only ever been possible due to the single limiting factor of his physical body.
Defining an entire group of entities as 'Evil' is never an advisable course of action. That being said, Nightmares are, bar none, the antithesis of all things good. Terror given form, Nightmares exist for nothing more than to feed off the mortal races. The similarities Nightmares share with Daemons makes it easy to miss-classify them. Nightmares are both immortal beings and have the potential to wield devastating power. Nightmares differ most in their lack of physicality and parasitic nature.
Nightmares are more spirit than monster and completely lack a body of their own. In order to maintain a presence in the physical world, Nightmares must find a willing host. This is much easier than it may seem. While lacking a body to inhabit Nightmares are able to enter the dreams of sentient beings. Once inside, it is a simple matter for them to decide if their target is one they can corrupt sufficiently to be allowed in. Promises of power or revenge are common, but far from their only method of gaining sway over the intended host.
(Oddly, Nightmares seem to have a tendency to fulfill their hosts wishes at the time of possession.)
Once possessed the host loses all control over his or her body. There are only two options from that point forward. Containment or Exorscism. Neither of which are particularly attractive. Containment requires magic on a scale that most creatures simply don't have (The one confirmed case being banishment to the Moon). A standard exorcism is not something to be taken lightly. In most cases the Nightmare has no intention of giving up their body and won't give up without a fight. Even if the exorcism is successful, and the host lives, the Nightmare will simply be free to find a new one.
(It should be noted that the Elements of Harmony have proven effective at Nightmare removal, however, the Nightmare will still survive.)
Unlike Daemons, A Nightmare's power comes directly from the creatures around it. Where Daemons exist on a fairly steady source of power from the world at large, a Nightmare's will fluctuate a great deal depending on its available food source. That food source being the emotions of the mortals around it. This is less than ideal for them, and most work tirelessly to encourage the emotions they prefer; the more ponies expressing that emotion, the more power the Nightmare has to draw upon. There have been instances where Nightmares became power hungry and set out to gorge themselves to the point that they nearly wiped out their food source.
There are two basic styles of feeding that Nightmares will employ: direct and general (the benefits of one over the other are not known).
Direct feeding is the most visceral. Immediately fatal, direct feeding happens when a Nightmare sucks the emotion from their prey.
General feeding is more common as it leaves the prey alive and provides a steady source of food. Instead of draining a potential victim(s), the Nightmare will seek to create an atmosphere that is conducive to the emotion they wish to feed upon. The methodology varies wildly based on the emotion desired. Once the desired emotion is being expressed, the Nightmare will simply absorb it as it is given off by the victim(s).
The Most notable example of a Nightmare was Nightmare Moon. Having corrupted Luna, the Nightmare sought to create fear on a scale that spanned the continent. Each day that the moon failed to set the Nightmare grew more powerful until Celestia banished it and her sister to the moon.