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Why is the Moon covered with craters?
Perhaps a better question might be why isn't Earth covered with craters? Both Earth and Moon -- and the other inner planets -- were heavily bombarded by meteors and comets in the tumultuous days of the early solar system. Mercury and our Moon still bear the scars of the terrific pounding, while Earth, Venus and Mars show few signs of damage at all.
The relatively crater-free surfaces of Earth, Venus, and Mars can be explained by the existence on these three worlds of powerful surface-changing mechanisms, namely plate tectonics (Earth), the eroding effects of wind and water (Earth and Mars), and extensive volcanic activity (all three). These forces have helped smooth out the cratered landscapes.
While the Moon is known to have once been quite volcanically active -- great lava flows produced the dark "seas" on the surface -- it has long since quieted, and the extraordinarily tenuous atmosphere of the Moon is incapable of producing any erosion effects. Many of the craters we now see on the Moon remain almost exactly as they must have appeared hundreds of millions of years ago.