From Destinypedia, the Destiny wiki
Nightmares are apparitions of Darkness created by the Pyramids for psychological warfare; manifested as past figures and enemies to exploit the trauma and worst fears of Guardians and other beings. First appearing following the discovery of the Pyramid on Luna, the Nightmares include phantoms of some of Guardians' deadliest foes, including Crota, Fikrul and Ghaul.
According to Hashladûn, Nightmares are described as the malleable creations of the Pyramid, as they are not alive but made of chaos, negation, and the raw things found existing in spaces between thought and fear. Nightmares appear to be extracted from the psyche as violent manifestations that wreak havoc with grief and trauma. Their phantasmal essences are also known to induce major psychosis among its victims, most notably the crew of the K1 project after they were exposed to an artifact from the Darkness.
Nightmares usually takes the form of a miasma of crimson reddish-black Darkness that extrudes shimmering tendrils radiating away at its core; often appearing as previous enemies of humanity in corporeal form or ghosts of former past allies; both which associated with painful or traumatic memories. Eris surmised that the true purpose of the Nightmares is a tool to manipulate and exploit Guardians at their weakest; for the explicit temptation towards the Pyramids and their promises of power.
The Nightmares are found primarily near and in the Scarlet Keep citadel, which was built in close proximity towards the Pyramid. Beyond the Moon, Nightmares had propagated on other celestial bodies, roosting in Lost Sectors as its previous enemy tenants.
Nightmares are enemies that debut in Shadowkeep and are primarily encountered in Lost Sectors and during endgame activities like Nightmare Hunts and Altars of Sorrow on the Moon. They can vary in difficulty; such as Elite, Major, and Ultra, and drop phantasmal orbs upon death that grants players an "Unstable Essence" damage buff on all other Nightmare enemies for ten seconds. Nightmare bosses are often accompanied by two Major mob enemies that can respawn if destroyed, most often when boss health reaches halfway and if there are no current Nightmare enemies standing then.
Ultra-tier Nightmares, especially the ones found in Nightmare Hunts, have an additional mechanic that renders them intangible with immunity to damage in an reddish-black ethereal form after they spawn additional Nightmare mobs; forcing players to clear them first to initiate the next damage phase.
Nightmares have an chance of dropping "Phantasmal Fragments" and even rarer "Phantasmal Cores" as a resource to craft weapons and Dreambane Armor at the Lectern of Enchantment, which are unlocked from Nightmare Essence weapon bounties (which can drop from bosses during Nightmare Hunts and randomly on the Moon). Even certain armor mods equipped to Dreambane armor are effective in both warding and boosting damage against Nightmare enemies.
List of Appearances