The Wounded Rainbow is a creation made by the Creator which spans the Heavens to give his children happiness.
The mortar he used was filled with Spite by Lord Foul and so the Rainbow mas made with a wound in its surface. The Creators children danced along the Rainbow and finding the wound danced through it into the Land not understanding its meaning. In his anger the Creator sealed the wound but trapped his children on the Land and they became the stars after dancing across the sky and are now trapped there until the Creator can find a way to destroy his enemy Lord Foul.