Section 1: Nightmare Fuel Edit
Nightmare Fuel is used to craft various magical items. Shadow Creatures will drop Nightmare Fuel when killed or after they despawn. They will spawn when Sanity is below 15% of a character's maximum Sanity. Green Mushrooms can be obtained by chopping down Green Mushtrees or by finding various Green Mushrooms scattered in Green Mushtree Forests, and then eaten raw to quickly lower Sanity.
Section 2: Bunny Puffs, Carrots, and Boards Edit
Deconstructing Rabbit Hutches with a Hammer will yield 5 Carrots, 2 Boards, and 2 Bunny Puffs. Note that Bunnymen will eat Carrots left on the ground. This material can then be used to rebuild your own Rabbit Hutches on the surface, making farming Beard Hair much easier.
Section 3: Beard Hair Edit
Bunnymen transform into Beardlords when Sanity is below 40%. They drop 2 Beard Hair when killed. Note that they will attack in packs and deal 60 damage per hit.