How does night and day affect the game?
Night and day should be different looks, nighttime should be darker than daytime. Things get even worse in dungeons and caverns, which are even darker than night. If you go in a dungeon or a cavern, make sure you're going in there with enough torches or a light spell to last the whole trip. If you don't, you'll soon find yourself lost in the dark.
There are also NPCs that will respond to you differently during the day than they will at night, or they might not speak with you at all!