The study of highly excited atoms has a long history in AMO physics, from the early days of quantum mechanics to the more recent development of cavity-QED. Lately, the advent of ultracold gases has ushered in a renaissance of Rydberg atom physics, allowing to create, probe, manipulate and utilize extreme Rydberg states with unprecedented precision. In particular, the combination of ultra-low temperatures, high densities and strong Rydberg atom interactions leads to rich physical behavior with an increasing spectrum of potential applications in optical and information science. In this talk, I will describe different approaches to turn laser-driven Rydberg gases into a versatile platform for exploring exotic phenomena in diverse artificial quantum systems, resembling quantum magnets, quantum fluids or quantum solids. In addition, the strong Rydberg interactions have a substantial back-action onto the light field that excites the atoms. The resultant intricate interplay of light-matter and atom-atom interactions gives rise to unrivaled optical nonlinearities that open the door to manipulating light at the level of single quanta. I will present our progress towards understanding photon propagation in this new regime of quantum optics, from classical nonlinearities and few-photon applications to quantum many-body physics of light. Recent observations, current experimental challenges and potential solutions will also be discussed.