Daylight cycle

The day/night cycle is a 20 minute long lapse between two main light settings.
 * In 1.8 this can be changed you press F6 (reverse time) and F7 (advance time) which allows you to manipulate the time of day/night.

Daytime
Daytime is the longest section of the cycle, lasting 10 minutes.
 * When a player first spawns in Infdev, Alpha, and Beta the cycle will always start right at the beginning of daytime.
 * Daytime features the Sun, and a light blue sky. This color depends of the biome you are currently in. Deserts and Forests have a turquoise sky, while Tundra and Taiga have a more blue sky.
 * During daytime, all blocks that are in direct vertical view of the sky receive daylight, the strongest light possible, which is light level 15.
 * Daylight provides ample light for the growth of all trees and crops.
 * Zombies and Skeletons in direct view of the sky (and not in water or minecarts) during daytime will be set on fire.

Sunset/Dusk
Lasts 1 ½ minutes.
 * A period between daytime and nighttime, when the Sun sets on the South horizon, and the Moon rises on the North horizon.
 * The light level of all blocks that are in direct vertical view of the sky and are not lit by other sources decreases by 1 every 10 seconds.
 * The sky near the setting sun will have a red glow when the sun sets.
 * Actual time of Sunset will not change if the texture for the sun is changed. The day/night cycle will be the same length with the same effects even if the sun is visibly larger or smaller.
 * The sun will also get visibly larger when it sets.

Nighttime
Lasts 7 minutes.
 * During nighttime the world is covered in darkness with a light level of 4, and hostile mobs may spawn on the surface.
 * Nighttime features the Moon, and a dark blue sky, with white stars.

Sunrise/Dawn
Lasts 1 ½ minutes.
 * A period between nighttime and daytime, when Moon sets on the South horizon and the Sun rises on the North horizon.
 * All blocks that are in direct vertical view of the sky get 1 shade of lighting brighter every 10 seconds.
 * The sky near the rising sun will have a red glow when the sun rises.
 * The sun will slowly shrink to its 8x8 pixel size while rising.

Clock
In the Halloween Update, Notch added a clock that lets you tell the time in the Minecraft world. It's crafted like this:

Note: The clock will spin uselessly in The Nether, because time does not exist there.

Trivia

 * In the Minecraft sky, the Sun and Moon always appear in the same position relative to the stars.
 * When looking directly at a star that is uncovered by a cloud, it will appear over the cross-hair.
 * Day and night do not simulate when the game is paused in single player.
 * Passage of time in the game generally stops when you alt-tab away from the game (due to the menu appearing). To get around this, you can open a chest, your inventory, or a furnace, a dispenser, or even chat. This will prevent the menu from appearing when you switch tasks, allowing for time passage while you're in a different window.
 * Notch mentioned on his Twitter that the sun actually rises in the north in Minecraft. This would mean that the Sun sets in the south, the Moon rises north and sets south, you would spawn facing north and that the clouds actually float west.

Time Measurements
The following are approximations of Minecraft Time to Real Time:


 * 1 Minecraft Minute ≈ 0.8 seconds of gameplay.
 * 1 Minecraft Hour = 50 seconds of gameplay.
 * 1 Minecraft Day = 20 minutes of gameplay
 * 1 Minecraft Week ≈ 2.3 hours of gameplay.
 * 1 Minecraft Month ≈ 10 hours of gameplay.
 * 1 Minecraft Year ≈ 5 days of gameplay.

The approximation of Real Time to Minecraft Time:


 * 1 hour of gameplay = 3 Minecraft Days.
 * 1 day of gameplay = 72 Minecraft Days.
 * 1 week of gameplay ≈ 1.4 Minecraft Years, ≈ 16 Minecraft Months, = 72 Minecraft Weeks, ≈ 500 Minecraft Days
 * 1 month of gameplay = 6 Minecraft Years, = 72 Minecraft Months, ≈ 310 Minecraft Weeks, ≈ 2200 Minecraft Days
 * 1 year of gameplay = 72 Minecraft Years, ≈ 860 Minecraft Months, ≈ 3800 Minecraft Weeks, ≈ 26000 Minecraft Days