I have just finished my sixth and seventh full runs of The Binding of Isaac. After completing the sixth run, you do not unlock a new item but instead you just get the “Everything’s Terrible!” achievement and the game informs you that it has just gotten harder:
However, on my seventh playthrough I did not notice anything unusually difficult. Just how does the game change to become more difficult?
According to comments on the wiki, “Everything is Terrible” makes alternate colored monsters and bosses more common. This is actually good, because alternate colored monsters tend to leave drops on kill.
According to the mechanics guide, it also makes Curses more common in Wrath of the Lamb.
Additionally, however, bosses drop one less heart pickup (heart, half-heart, spirit heart) than they previously did.