At the end of each turn, each adjacent sleeping opponent takes damage equal to 1/8 of its maximum HP.
Bad Dreams inflicts damage after a Pokémon that is drowsy due to Yawn falls asleep (and thus inflicts damage to a Pokémon the same turn it falls asleep due to drowsiness). Bad Dreams applies after a Pokémon has the opportunity to be woken up by Hydration, Shed Skin, or Healer.
If a person or a Pokémon is asleep near Darkrai, it suffers from horrible nightmares that can be fatal if the sleeping person or Pokémon doesn't wake up in time. The Ability is active even if Darkrai is inside of a Poké Ball.