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Rabbits can challenge each other to test their skills and become stronger, either leveling up and/or gaining stats for winning. You can find challengers by clicking the 'Find Rabbits' link from the Explore Map. Each area has its own unique challengers that you can encounter. As your account levels up, you'll gain access to more areas with stronger rabbits in them (and different colored rabbits, too).
By winning challenges, your rabbits (and your account) will gain experience. The challenger will give you a few points for beating them. Your rabbit may also gain a boost to one of his/her stats (if he/she hasn't been maxed out yet). In addition, a defeated challenger will ask to join your group. This makes challenges a good way to level up, gain stats, earn points, and acquire new rabbits all at the same time.
Before entering a challenge, you can see how strong the opponent is based on their level and power. Power is a combination of their attack, defense, and health stat and is a large determining factor in who will win. If you want your rabbits to level up faster from winning challenges, try choosing opponents who have a higher level but lower power. That way, you will be more likely to win and get rewarded.
Your rabbits can gain an upper hand by using special skills. These skills will deal more damage but require energy, so if your rabbits runs out of energy, he/she will have to go back to using basic skills. You can add special skills to your rabbit's aresenal by visiting the skills page from their profile and adding the skills by learning them (you can unlearn or relearn them any time, so don't worry about messing anything up here). (Note: your rabbit will need skills meant for rabbit challenges—foraging and predator skills won't appear during a challenge).
If your rabbit finds themselves low on health or energy, they can use items to recover during a challenge. Items can be used once per turn in addition to an attack, so you don't need to sacrifice a turn to use them. Herbs will generally give your rabbit health, and more sugary foods like fruits, vegetables, and berries will provide energy.
Some skills can cause 'permanent' damage to your rabbit or his/her opponent. These will cause a visible scar that will remain after the challenge. They will appear right away during a battle (if acquired). Scars can be healed with aloe vera, though, so they're not much to worry about (though you will need to forage or pay some points to get the aloe vera for healing).
Some players like having rabbits with a scar, so you may find yourself seeking an opponent who can give one. These do not appear in earlier levels.
After winning a challenge, you'll have the option to accept the challenger into your group. Alternatively, you can deny their request or come back later. Coming back later will add them to your 'Incomplete Challenges' list from your rabbits page where you can change your mind before midnight (so long as the challenger didn't run off).
Some rabbits you encounter may be holding an item. Once you defeat the rabbit, the item will be revealed and sent to your Den automatically (assuming you have enough room).
Note: if you don't have enough room in your den, you can come back later from the incomplete challenges list to claim it. Make sure not to leave unclaimed items sitting for more than a day. If left to wait too long, those challengers may leave.
Below are all of the items you can find via challenges by location.