Two effects cause the Sun and Moon to seem bigger near the horizon. One is an optical illusion - these objects seem larger because you have trees, buildings, etc. to compare them to. The other effect is due to the fact that near the horizon, the light of the Sun or Moon is passing through more atmosphere than at higher altitudes. Imagine yourself standing on the surface of the Earth, with the atmosphere as a sphere around the Earth, centered at the Earth's center. The refraction, or bending, of the light of the Sun and Moon by the atmosphere is therefore greater at the horizon.
More refraction means the more spreading out of light and so they appear larger.
Let's look at how the aurora are formed. These particles spiral down the Earth's magnetic field lines until they run into atmospheric gases. These collisions give off energy that we perceive as different colored light. Also called mock suns or parhelia, sun dogs are bright spots which appear on either side of the Sun when it is near the horizon. They are caused by ice crystals in the upper atmosphere which refract light in a certain way.