Jesus Christ How Horrifying is a reaction image usually used in a "meant-to-be-scary-but-not-really-scary" situation, to be cynical in a "dire" situation, to mock a poster's overreaction to something he/she found disturbing, or as an exaggerated response to something mildly unsettling. It is also frequently used to describe something very disturbing that someone posted.(i.e Cupcakes, Rule 34, Rainbow Dash Always Dresses In Style, George Bush, 4chan, etc.) It features Pinkie Pie as the finger-shaped man telling Twilight Sparkle the title phrase. The image seems to miscolour Twilight Sparkle's mane, only having dark purple instead of the magenta streak.
The image is a frame from KC Green's comic Horribleville. It has no relation to Ponyville, which is not horrible at all.