Skooma is an addictive drug. It is a mix of Moons Sugar and Nightshade extract. It is smoked from the bottle through a pipe.
Production occurs in Elsweyr. However, in Diabetes Anderson, S'oggy Balls poisoned all of the Skooma and committed genocide against his own race, the Khajiit. After S'oggy realizes that no more Skooma can be produced ever, S'oggy goes all over Skyrim to buy the remaining Skooma. This causes chaos in the streets of Whiterun. (Dark Sisterhood)