Rabbi Shimon ben Pazzi pointed out a contradiction between verses. One verse says: And God made the two great lights (see Bereishit 1:16) and immediately the verse continues: The greater light . . . and the lesser light.
The moon said unto the Holy One, blessed be He, ‘Sovereign of the Universe! Is it possible for two kings to wear one crown?’ He answered: ‘Go then and make thyself smaller.’ ‘Sovereign of the Universe’! cried the moon, ‘Because I have suggested that which is proper must I then make myself smaller?’ He replied: ‘Go and thou wilt rule by day and by night.’ ‘But what is the value of this?’ cried the moon; ‘Of what use is a lamp in broad daylight?’ He replied: ‘Go. Israel shall reckon by thee the days and the years.’ ‘But it is impossible,’ said the moon, ‘to do without the sun for the reckoning of the seasons, as it is written: And let them be for signs, and for seasons, and for days and years.’ ‘Go. The righteous shall be named after thee as we find, Ya’akov the Small (see Amos 7:2), Shmuel the Small, David the Small (see I Shmuel17:14).’ On seeing that it would not be consoled the Holy One, blessed be He, said: ‘Bring an atonement for Me for making the moon smaller.’ This is what was meant by Rabbi Shimon ben Lakish when he declared: Why is it that the he-goat offered on the new moon is distinguished in that there is written concerning it “unto the Lord” (see Bamidbar 28:15)? Because the Holy One, blessed be He, said: Let this he-goat be an atonement for Me for making the moon smaller.
The Maharal mi-Prague writes that by means of this description of negotiations between the moon and God, the Sages are attempting to describe different elements of Creation. The story itself is interpreted in many different ways, among them an explanation put forward by the Maharsha that the moon is a metaphor for the Jewish People. On its most basic level, this is a description of the limitation on the full spiritual light that is to be found in this world, a situation that will change in the World to Come, as described in Sefer Yeshayahu (30:26) “Moreover the light of the moon shall be as the light of the sun…”