Sun

What is the Sun?
The Sun is a sprite appearing only in Indev, Infdev and Alpha that lights up all top-most blocks while it is in the sky. When the player creates a new map the sun starts on the horizon at dawn. As time passes, it will slowly move across the sky and over the horizon while the moon rises on the opposing horizon. Daytime lasts 11 minutes and grass blocks will only spread when exposed to sunlight. Obviously even if the sun is shining the deeper you go underground the less sunlight comes in until there is no sunlight coming in at all.

Sunlight
Sunlight, in game, is the name given to the light which illuminates all blocks which do not have a shadow cast over them by a non-transparent block positioned vertically above them in the sky.

Sunlight is one of the two prerequisites to turn dirt blocks into grass blocks (the other being that there must be another sun-affected grass block adjacent to it). Sunlight alters the brightness of the blocks it falls upon.

Mobs
Sunlight is harmful to skeletons and zombies, and they will be set on fire upon entering an area illuminated by sunlight. Spiders, slimes and creepers are not harmed by sunlight, but no monsters of any kind can spawn in it.

Trivia

 * The sun is 8 x 8 blocks.
 * When the sun sets the blocks actually change the light depending on what angle the sun is at.