All games begin on Normal difficulty. You can create and join games on the next difficulty level once you have defeated the game on its previous difficulty. You can create and join games on Nightmare difficulty once you have defeated the game on Normal Difficulty. You can create and join games on Hell difficulty once you have defeated the game on Nightmare difficulty. This is the case for each of your characters.

Once you have beaten the game on Normal Difficulty, you can create Hardcore Characters.

Level Recommendations
If your goal is experience, you may not want to jump into Nightmare difficulty right away after defeating the game on Normal Difficulty. The Monsters in Nightmare start at level 36 and quickly increase in level. You'll find that these monsters have a better chance to hit you and you'll have a harder time hitting them because they are a higher level than you when using Melee attacks. Lowered resistances to monster attacks will also make it more difficult to survive. You will probably not receive as much experience as staying in Act V of Normal Difficulty for a while longer. Also Nightmare has the additional risk of losing experience when you die so you may lose all of the experience you have gained recently with a few deaths on Nightmare Difficulty. It's recommended to immediately complete the Den of Evil quest again on Nightmare Difficulty as soon as you have defeated Normal Difficulty for the reward and then hop back into Act V.

To be safe, stay in Act V as long as you are earning good experience. You can still get good experience in Act V until at least Level 40, and you can stay longer in this area by joining games with more players which will increase the amount of experience a monster gives but will also increase their hit points. You can test the experience in different areas by comparing the amount experience you get within a given time using a watch or stop watch.

Note that once you have defeated Normal Difficulty you will only be able to see Nightmare games on your games list for Realm Characters. You can, however, still create Normal Difficulty games. Characters that have defeated Nightmare will only see Hell Difficulty games on their games list for Realm Characters but can create games on any difficulty or join games on any difficulty if you type in the name of the game.

Normal Difficulty is the default Difficulty level. Only by defeating the game on Normal Difficulty level can you unlock higher difficulty levels and Hardcore Mode. You do not lose experience when dying on Normal Difficulty level so it's recommended that you stay and level up there as long as you can. Before you can advance on to Nightmare Difficulty you must defeat Baal on Normal Difficulty.

Once you have defeated the game on Normal Difficulty only Nightmare Difficulty games will appear on the games list for Realm Characters.

How do I start or join a Nightmare Game?
You must first defeat Baal on Normal Difficulty.

Experience Loss
When you die in a Nightmare Difficulty game you will lose 5% of your experience. The experience loss (5% in Nightmare and 10% in Hell) is applied to the experience difference from the current level to the next level. So, if you achieved level X at experience 1,000,000 and you would achieve level X+1 at experience 2,000,000, then the penalty is 5% or 10% of (2,000,000-1,000,000), that is, 5% or 10% of 1,000,000.

Retrieving your corpse where you died in Nightmare and Hell restores 75% of any experience lost at death.

Player Leveling
Players will level up faster (from levels 26-50ish) in Nightmare.

Items
Players will have a better chance of getting magic enhanced items. Monsters will also have a slim chance (10%) to drop an Exceptional Piece of Armor or Weapon with an increased chance for special Monsters (20%).

Elite items will start to drop toward the end of Nightmare.

Unique and Champion Monsters
Unique and Champion Monsters gain a 75% damage bonus in Nightmare.

Resistances
Player and Hireling resistances are lowered by 40 in Nightmare.

Hireling Damage vs Act Bosses
Hirelings and Summons do 35% damage to Act Bosses in Nightmare.

Freezing, Life/Mana Stealing, Chilling, AI affecting Curses (Confuse, Attract, Dim Vision)
Are cut in 1/2 in Nightmare.

Static Field
Static Field cannot bring a monster's life lower than 33% in Nightmare.

Monsters
Monsters are more difficult in Act V and Nightmare Difficulties than Normal Difficulty by improving the monsters stats (hit points, defense) and by boosting their AI/behavior. They make decisions more often and move faster. Monster damages generally increase also.

The hit points of Barbarian Soldiers in Act 5 are reduced.

Monster levels, hit points, Armor Class, Experience, Damage, Chance to Hit, and Resistances all go up.

Monster skill levels go up +3.

You will start to see more and more monsters with immunities.

Unique Monsters gain one bonus ability.

Nihlathak's Corpse Explosion deals 35% damage in Nightmare.

Monsters populations are more randomized including guest monsters from other acts.

Other
Many areas will now have much larger maps. The Forgotten Tower, The Catacombs, The Durance of Hate and the Worldstone keep are a few examples of these areas.

Rewards for defeating Nightmare Difficulty

You can now create and join Hell Difficulty games. You will now see Hell Games on the games list for Realm Characters.

New Titles
Normal Mode: Nightmare Difficulty: Champion
Hardcore Mode: Nightmare Difficulty: Conqueror

Once you have defeated the game on Nightmare Difficulty only Hell Difficulty games will appear on the games list for Realm Characters.

How do I start or join a Hell Difficulty level game?
You must defeat Baal on Nightmare Difficulty.

Experience Loss
When you die in a Hell Difficulty game you will lose 10% of your experience. The experience loss (5% in Nightmare and 10% in Hell) is applied to the experience difference from the current level to the next level. So, if you achieved level X at experience 1,000,000 and you would achieve level X+1 at experience 2,000,000, then the penalty is 5% or 10% of (2,000,000-1,000,000), that is, 5% or 10% of 1,000,000.

Retrieving your corpse where you died in Nightmare and Hell restores 75% of any experience lost at death.

Player Leveling
Players will level up faster (from levels 51-75ish) in Hell.

Items
Players will have a better chance of getting magic enhanced items. Monsters have a 20% chance to drop an Exceptional piece of Armor or Weapon, 40% for special Monsters. They also have a 30% chance to drop an Elite piece of Armor or Weapon, 40% for special Monsters.

Unique and Champion Monsters
Unique and Champion Monsters gain a 66% damage bonus in Hell.

Monsters
Monsters are more difficult in Act V and Hell Difficulties than Nightmare Difficulty by improving the monsters stats (hit points, defense) and by boosting their AI/behavior. They make decisions more often and move faster. Monster damages generally increase also.

The hit points of Barbarian Soldiers in Act 5 are reduced.

Monster levels, hit points, Armor Class, Experience, Damage, Chance to Hit, and Resistances all go up.

Monster skill levels go up +7 in hell.

Unique Monsters gain two bonus abilities.

Monsters have more immunities.

There are more Unique Monsters in Hell difficulty.

Nihlathak's Corpse Explosion deals 20% damage in Hell.

Monsters populations are more randomized including guest monsters from other acts.

Player Resistances
Player and Hireling resistances are lowered by 100 in Hell Difficulty.

Hireling Damage vs Act Bosses
Hirelings and Summons do 25% damage to Act Bosses in Hell.

Life/Mana Stealing
Are cut 2/3 in Hell.

Freezing, Chilling, AI affecting Curses (Confuse, Attract, Dim Vision)
Are cut 3/4 in Hell.

Static Field
Static Field cannot bring a monster's life lower than 50% in Hell.

Other
Many areas will now have much larger maps. The Forgotten Tower, The Catacombs, The Durance of Hate and the Worldstone keep are a few examples of these areas.

Rewards for defeating Hell Difficulty

New Titles
Normal Mode: Hell Difficulty: Patriarch, Matriarch
Hardcore Mode: Hell Difficulty: Guardian