This is taken from Islam QA, and has been edited linguistically to better fit the readers of this site.

Sheikh Muhammad Salih Al-Munajjid was asked, “What are the virtues of the Day of Arafah?” This is what he said:

Praise be to Allah.

  1. It is the day on which the religion was perfected and Allah’s Favour was completed. In Al-Saheehayn, it was reported from Umar ibn al-Khattab (may Allah be pleased with him) that a Jewish man said to him, “O Ameer al-Mu’mineen (Leader of the Believers), there is an Ayah (Quranic verse) in your Book (the Quran) which you recite. If it had come to us Jews, we would have taken that day as an Eid (festival).” Umar asked, “Which Ayah?” He responded, quoting the verse of the Quran (5:3 – interpretation of the meaning), “This day I have perfected your religion for you, completed My Favour upon you, and have chosen for you Islam as your religion.” Umar said, “We know which day and in which place that was revealed to the Prophet (SAW). It was when he was standing in Arafah on a Friday.”
  2. It is a day of Eid for the people who are in that place. The Prophet (SAW) said, “Yawm Arafah (the Day of Arafah), Yawm al-Nahr (the Day of Sacrifice), and Ayyaam al-Tashreeq (the three days following Yawm al-Nahr) are Eid for us, the people of Islam. These are days of eating and drinking.” This was narrated by the authors of al-Sunan. It was reported that Umar ibn al-Khattab said, “It (i.e. the Ayah, ‘This day I have perfected…’) was revealed on a Friday, the Day of Arafah, both of which, praise be to Allah, are Eids for us.”
  3. It is a day by which Allah has sworn an oath. The Almighty would not swear by anything except that which is mighty. Yawm Arafah is the “witnessed day” mentioned in the Ayah “By the witnessing day (Friday) and by the witnessed day (the Day of Arafah).” (Quran 85:3). It was reported from Abu Hurairah (may Allah be pleased with him) that the Prophet (SAW) said, “The promised day is the Day of Resurrection, the witnessed day is the Day of Arafah, and the witnessing day is Friday.” (Narrated by at-Tirmidhi and classed as Saheeh (valid/true) by al-Albaani. It is also the “odd” (i.e. odd-numbered) by which Allah swore when He said, “And by the even and the odd.” (Quran 89:3). Ibn Abbas said, “The even is the Day of al-Adhaa (i.e. the 10th day of the Islamic month of Dhul-Hijjah) and the odd is the Day of Arafah (i.e. the 9th of Dhul-Hijjah). This is also the view of Ikrimah and al-Dahhaak.
  4. Fasting on this day is an expiation for two years. It was reported from Abu Qataadah (may Allah be pleased with him) that the Messenger of Allah (SAW) was asked about fasting on the Day of Arafah. He said, “It expiates the sins of the previous year and of the coming year,” (Narrated by Muslim). This fasting is Mustahab (recommended and beneficial, but not obligatory) for those who are not on Hajj (pilgrimage). In the case of the one who is on Hajj, it is not Sunnah for him to fast on the Day of Arafah, because the Prophet (SAW) did not fast on this day in Arafah. It was narrated that he forbade fasting on the Day of Arafah while being in Arafah.
  5. It is the day on which Allah took the covenant from the progeny of Adam (may Allah has mercy on him). It was reported that Ibn Abbas (may Allah be pleased with him) said: The Messenger of Allah (SAW) said, “Allah took the covenant from the loins of Adam in Na’maan (i.e. present day Arafah). He brought forth from his loins all his offspring and spread them before Him, and then He addressed them saying: Am I not your Lord? They said, ‘Yes, we testify.’ ‘Lest you should say on the Day of Resurrection: ‘Verily, we have been unaware of this.’ Or lest you should say: ‘It was only our fathers aforetime who took others as partners in worship along with Allah, and we were (merely their) descendants after them; will You then destroy us because of the deeds of men who practiced Al-Baatil (i.e. polytheism and committing crimes and sins, invoking and worshipping others besides Allah)?’ (Quran 7:172-173 – interpretation of the meaning).” Narrated by Ahmad and classed as Saheeh by al-Albaani. And there is no greater day than this and no greater covenant than this.
  6. It is the day of forgiveness of sins, freedom from the Fire, and pride in the people who are there. In Saheeh Muslim, it was narrated from Aisha (may Allah be pleased with her) that the Prophet (SAW) said, “There is no day on which Allah frees more people from the Fire than the Day of Arafah. He comes close and expresses His Pride to the angels, saying, ‘What do these people want?’” It was reported from Ibn Umar that the Prophet (SAW) said, “Allah expresses His Pride to His angels at the time of Isha (the fifth daily, obligatory prayer) on the Day of Arafah, about the people of Arafah. He says, ‘Look at My slaves who have come unkempt and dusty.’” (Narrated by Ahmad and classed as Saheeh by al-Albaani)

And Allah knows best.