Underlight focuses on character development and interaction rather than combat or items. The game has enforced 'in-character' roleplaying, gives players the power to teach skills to other players, has player-driven monsters, and allows higher powered players to gain experience from subordinates. Underlight's setting is a shared dream state. Gameplay revolves around the interactions of numerous guilds, each with a different take on the dream-space they inhabit. There are no non-player characters (NPCs) except for a few monsters (or "nightmares".)
In November 2006 it was announced the game will be shut down on New Year's Eve 2006 due to a dwindling user base and chronic understaffing.
Following the demise of the Lyra run version of Underlight, several licenses were purchased from independent groups, in efforts to continue the game for some of the dedicated players. By the end of 2007, a comparatively modest number of players and volunteer gamemasters joined together in a free version of Underlight entitled, "Shades of Truth".  Hosted by Ixios Studios, the project maintained for several months before internal conflicts led to an offshoot of the project hosted on a new server. This offshoot maintained for several months also before shutting down.  The remnants of the two efforts consolidated once again with Ixios Studios hosting the project, beginning at the start of 2009. It continues to be hosted for free at the Underlight: Shades of Truth site.
GamesFirst retrospective of Underlight highlighted its unusual setting, potential for social interaction and low system requirements. However, in comparison to more modern MMORPGs, the graphics and playing area seemed poor. Other criticisms included an unfulfilling combat system and lack of depth-adding elements (for example, there was no indication that additional equipment could be found later in the game.) Overall, Underlight was awarded 2 out of 5 stars.