Nightmare is the beautiful, confident female Scyther that Razor was infatuated with, but who left the swarm after she neglected to kill him after their duel and was shortly after this caught and evolved by a trainer named Michael Willows. Prior to her leaving, she was also Sickle's friend.
A lot of Nightmare's significance to the QftL universe concerns her great influence on Razor, an influence that's far greater than it would seem considering he barely knew her. Firstly, and most obviously, Nightmare's defeat of him turned his world upside-down by confronting him with his own weakness and fear of death as he realized he did not want to kill himself. Somewhat more subtly, however, she also served as his excuse to run away from the swarm; his feelings for her before this were never really anything deeper than your average admiration-crush, but realizing she had gone gave him the inspiration to break out of the system altogether - he excused it as being fueled by love, but really it was just an escape, a purpose to work towards. And when Nightmare had been caught and evolved, that purpose was gone, as well as piling more guilt on him than there was already: if he hadn't challenged her, none of this would have happened, and she'd have remained a free Scyther.
In the years that followed, Nightmare in Razor's mind was partly exaggerated into an image of idealized perfection that he becomes more obsessively infatuated with than he ever really was with the real her, but also partly became pretty much a symbol for the guilt from his past, making the memory of her very conflicting for him. On the one hand, she as a Scizor reminds him of the greatest mistake of his life, and when something reminds him of her, that guilt is transformed into the same pointless, murderous rage that consumed him that day in the Pokémon Center: at Christopher's Gym, at the Pokémon Frenzy Tournament, when he saw Michael Willows walking around in the woods (note that he never attempted to free Nightmare, because it was never really about that and he couldn't stand to see her as a Scizor, the embodiment of his own failure) and later during the League battle against him. On the other hand, in his mind her Scyther self represents things as they were or ought to be, his desperate wish to somehow make up for it all or take it back, and so he fantasizes (as seen in the one-shot Nightmare) about being good enough for her somehow and earning her forgiveness, approval and perhaps even love, which in a symbolic way would free him from his guilt.
But enough about the Nightmare in Razor's head; let's talk about the real Nightmare. Much like Razor, during her time in the swarm she was quite confident and self-assured, having always been a bit stronger and faster than average even for her age. When she had defeated him in that duel, however, it struck her that this idiot she was supposed to kill just never stood a chance - he was just a too daring, too arrogant, too naïve young Scyther who really might learn from this and turn out okay. She didn't fear killing him, but she pitied him; rather than being confronted with her own weakness as Razor was, this was what sparked her first flash of ideological disagreement with what the Code decreed. She didn't quite figure out what struck her as so wrong about it until later, but she found herself unable to simply kill him and carry on, and so she stood up and walked away. She told Sickle she just didn't know why she'd done it, but she had an idea of it, though not one she was ready to admit to herself just yet. She knew she couldn't stay with the swarm, so she told her friend Sickle to tell the Leader she'd gone and then left. And of course, then she was caught in her sleep.
When she woke up to find herself a Scizor, it seemed like punishment for what she'd done; she wished she could commit suicide and escape from this body, but her pincers weren't suited to it. She couldn't run away; she realized she could never integrate into Scyther society again, and she would surely starve slowly and painfully if she tried to hunt with these new, alien tools. Her trainer sent her out in a battle or two, but she refused to fight back in the hope the other Pokémon might land a killing blow on her; they didn't.
It wasn't long before her trainer sent her out just to talk, and she was surprised to find he seemed almost kind. He asked her repeatedly what was wrong, and eventually she explained to him what the Scyther thought of evolution. Even more surprisingly, he said he was sorry and that he wouldn't have evolved her if he'd known. He resolved to help her cope with her new body and reassured her she could leave if she wanted and that she only had to fight if she wanted to. She didn't want to be a trained Pokémon, but she knew there was nothing for her in the wild if she were to be released, and not knowing what else to do with herself, she agreed to fight for him.
Over time, she came to find joy in battling again as she gained better control over her Scizor form; though she never fully embraced it, she eventually accepted it and began to regain her sense of purpose. It helped her that she developed a kind of coping mechanism of regarding the past as over and done with, instead focusing on what she could do in the present and what she could change in the future. During this time, she also came to think about and recognize her feelings about the Code better, and she constructed her own idea of how morality ought to work. She grew stronger with Michael for a couple of years in other regions before they returned to Ouen. There, one day, she participated in the Pokémon Frenzy Tournament, something she greatly enjoyed up until she was pitted against a Scyther.
To face what she used to be made her nervous, especially as she knew she could no longer match a Scyther's speed. She was defeated, the Scyther pinned her down with his scythe to her throat... and then she recognized him. It was that very Scyther who had started it all, the one who had called her Nightmare.
"You," she whispered as her trainer stood up to protest and demand she be recalled. She could tell the Scyther recognized her as well, finally. And when he released his hold on her and stood up, she had a distinct feeling the reason he spared her had nothing to do with the pleas of her trainer.
"Look who's a Scizor now," he said before they were recalled, and the irony stung her, but what could she do? She continued to fight for Michael, and a few months later they were at the Ouen League. But something happened in their first knockout battle; from what she heard from Michael's other Pokémon, a Scyther was involved, and Michael had suddenly turned strange and stopped giving commands. He blamed it on a headache, but she never really bought it; she could tell it had something to do with that Scyther, though she didn't know what.
Only a couple of months later, Michael told his Pokémon he was going to quit training for good. She was released on Route 309, where as chance would have it she happened upon Stormblade. She recognized him as the friend who had been standing by on the day of that fateful duel with Razor, and they talked. From him she found out her best friend Sickle was dead and that there was a new, tyrannical Leader - and that sparked within her the motivation to return to the swarm and do some good, her realizations about the Code giving her purpose yet again. They returned to the swarm, confronted Shadowdart and subsequently witnessed his suicide. This led to their becoming Leader stand-ins while the other Scyther started having friendly duels about who should take over. And Nightmare slowly realized that if she became Leader, she could abolish the Code she had come to despise and install a new, more sympathetic system of morality.
I really loved writing Razor's conversation with Nightmare in chapter sixty of the main fic, for many, many reasons, but largely because of how differently they think. Her outlook on life has become extremely future-focused; her way of dealing with all the crap in her past was to train herself to think about life in different terms, with the past being dismissed as unimportant and unchangeable. Razor, on the other hand, has been stuck on the past ever since his departure from the swarm. This results in a funny dissonance where he's convinced she must despise him and want to kill him, while holding grudges isn't something that really exists in her worldview anymore; her experiences have made her somewhat generally jaded and cynical, but she bears no real ill-will or anger towards him.
I also enjoy how much they both completely miss about one another. Razor doesn't really notice how much she wants to talk to him; she's had no one to speak to who has her 'outside' perspective on Scyther society and views trainers and humans with any real understanding. Meanwhile, rejecting the Code came so naturally to her when she left the swarm that it never actually occurs to her that he's retained his own Code-compliance impulse for all that time; his realization comes about by accident when she happens to mention it, without her trying to teach him her viewpoint, because she simply assumed he must have figured it out already.
I love Nightmare as a character; it kind of saddens me that she likely won't make any more appearances in the fic, or if so only very briefly. It was awesome to write her. Maybe I'll just write some more spin-offs.