Challenge is a game mode unlocked at 500 rating.
Challenge is a daily game where you battle against an AI setup. Usually, the player is at a disadvantage in position, pieces, or have lower morale, but all of them are beatable. If you win the battle, the next day when the next challenge is released, you may claim rubies based on difficulty (how many people failed the challenge), which is a percentage with a certain curve (100% is often achieved even with many successes). The reward is 20 rubies max at 95%+ difficulty. Sometimes Challenge has an unusual unit such as Chaosportal, or impossible positions.
(To the right: image of Challenge logo with time left, signaling it will give you gold stars and rubies should you finish it).
(Below: image of example challenge [from 10/21/2017], with previous and today's challenge overview, including attempts, victories, defeats, ruby prize (if completed challenge), average rating of people who completed the challenge, and difficulty level of current challenge)