While the game was designed to be played as a game set in the My Little Pony: Friendship is Magic setting, there's little tying the setting and system together. The system is also based off of Unknown Armies, which has a very different setting from Unknown Ponies.
In Unknown Ponies, anything can theoretically be a skill1. Unlike its parent game, where you spend experience points to increase skills, in Unknown Ponies your skill increases by 1 when you fail a skill roll. (Hence, "failure is awesome.")
Because of this, the more you use a skill, the more unlikely it becomes for you to increase it further each time you use it2. The game is a percentile roll-under system, so your stat is literally a percentage chance to succeed, with occasional situational modifiers (and increased for your "obsession skill" where you can always swap the roll's digits3, and whenever you utilize your Rage/Fear/Noble passions where conditionally once per session per passion you can swap the roll's digits or reroll).
One advantage here is that you don't have to keep track of twice as many numbers on your character sheet; there's no "experience bar" per-skill, you simply increase the skill when you fail. On the other hand, skill increases are dependent on variance, so some characters may have wildly higher skills than others. On the other other hand, if you have a "power gap" among your characters, the characters with lower skills are the ones that have actually been succeeding at their tasks. (Consider what would happen if skill increases were dependent on success: the players that succeed would be more likely to succeed in the future, and the power gap would expand.)
This system also works well with the "yes, but..." style of storytelling. When a player attempts an action, they succeed4 -- the roll merely determines how well they succeed, or what consequences may result from that action. In a percentile roll-under system where characters start with stats in the 25-35 range, they're going to fail rolls, frequently. When failed rolls don't mean failed actions, players tend to not become as frustrated with the system.
Attributes vs. Skills
This pattern does not apply to a character's attributes in Unknown Ponies. Attribute progression rules are more closely tied to the setting, and is basically spending experience points, like the parent game.
When a character in-game (or a player out-of-game) does something that exemplifies one of the five primary Elements of Harmony (Generosity, Honesty, Laughter, Kindness, Loyalty), that character (or the character owned by that player) receives a point on the associated Friendship Track. These points may be spent to manipulate the actions of NPCs, or alternatively you may spend five points in any combination to receive a point of the sixth Element, Magic (from the lore, the Element of Magic will appear when the other five are gathered). Magic points may be spent to manipulate the result of a die roll (turn critical failure into failure, failure into success, or success into critical success), activate skills the GM rules to be particularly powerful (for those familiar with the setting: think Dash's Sonic Rainboom, or Pinkie's... Pinkieness), or to increase attributes.
Of course, if you use the system and don't want the sunshine-and-rainbows part of it, you could simply fall back to using experience points5. Depending on the tone of the game you're running, you could also potentially disallow attribute increases entirely, leaving characters at their starting values. (Skills may not exceed their associated attribute.) Using Unknown Ponies character creation rules, starting attributes will be in the 30-60 range, or 30-80 for adult characters.
- In my current campaign, one of my players (who has a habit of Nice Job Beaking It, Hero [warning: TVTropes]) joked about picking up "Apocalypse" as a skill. If he continues on the way he has, I may end up handing it to him. In one of the Unknown Armies published one-shots, one character has a skill "Making Gobs of Money," another has "Thuggery" and "Shooting Things," and a third has "Faking a Seizure." Standard character creation in Unknown Ponies gives 9 specific skills at 25, and either 2 racial skills at 25 or 50 skill points, depending on race selection.
- I won't say "more difficult," as it all ultimately comes down to luck, and you may have some player that keeps rolling 00.
- Unknown Ponies is designed to have players play as "blank flanks," children who have not yet discovered their Special Talent, and as such do not assign their Obsession Skill until they reach 40 in a skill. However, the game has rules for starting play as an adult, and Unknown Armies starts all characters with their Obsession Skill assigned.
- In a sense, the combat system reflects this, too. Any "piercing" weapon, such as a dagger, will always deal at least 1 damage, even on a miss. Note that "yes, but..." is not explicitly a part of either Unknown Ponies or Unknown Armies; it's merely a style of GMing that can extend across games and genres.
- In my campaign, I've generally been handing out 3-6 points of the primary 5 Elements per session per character on average, and 5 of those points may be turned into a Magic point, which can increase an attribute by 1. You can extrapolate from that how many experience points to dole out (and experience costs) if you want to fall back to that.