>What can you do with lua?
It's the quasi standard for game scripting, where you don't want and need big standard libraries.
It got big when people realized that other scripting languages where a pain in the ass to embed.
These days there are better things, from game programmers themselves. Also, even better things are in the horizon
See http://freegamedev.net/wiki/Scripting#Scripting_languages.
There is also Mike Palls LuaJIT, which is slowly becoming more and more incompatible to the reference implementation.
It is one of the best JIT interpreters, but honestly, if your game scripting requires performance, chances are you are doing it wrong.
Custom bots may be a corner case.
Otherwise, this is how AAA games do it:
Engine -> Game (a C++ module) -> Event scripts