There is a lot of thing out in the atmosphere, clouds are visibles but some vapor and dust are here even when the sky looks clear.
The fact is that all that stuff has the effect of reflecting and diffusing light, so does also the air itself.
For a very bright source the overall effect is a diffuse blue light, yep that's why the sky is blue by diffusing the sunlight (the diffusion goese like frequency to the 4th power so is much more efficient for the blue than for the red) this explain also why the sunset/rise is redish: having to travel a deeper air column the light loose all its blue componnent.
Ok back to the night. Light, from the moon or from a neighbourg city, will behave the same as sunlight: it will be diffused in the atmosphere and make it more luminous. This might not be visible at first glance but when you are trying to collect faint light from the stars this diffused light act as a background noise.
Having more noise for the same signal make it more difficult to observe (lowering the Signal to Noise Ratio (SNR)) at worst it may be as bright as some of the stars and totally hide them.
A luminous sky (even faintly) reduce also the maximum exposure time, at least if you want a black background, it gives a greyish looks to the pictures.
It also (as in fact it is a blue dominated noise) fade star's colors.
Astronomer choose high altitude place for their telescopes reducing the thickness of the air the light has to travel, the most radical solution beeing to go out of the atmosphere.