They are bred for maximum cuteness, and have the ability to talk, however, due to being bred for cuteness they have functional skills equivalent to a toddler.
Commonly stories about them are posted on 4chan's /mlp/ board. Stories range from protagonists beating and abusing fluffy ponies, or having cutesy experiences with them. They also love spaghetti and hugs.
There is also a lot of fan art of them.
All of this and more can be found on the My Little Pony fan art wikipedia page.
Just Google "Fluffy Pony"
"I wish I had a pet Fluffy Pony"