The Season 2 finale of The Mandalorian proved up to its hype. The Dark Troopers' lethality was on full display. Din Djarin and his oddly assembled group of hunters were able to rescue Grogu, and there was even a surprise cameo by none other than the famed Luke Skywalker. On top of all of that, fans also got to see the downfall of Moff Gideon and his sheer terror at the prospect of seeing Luke’s power.
The Mandalorian's Moff Gideon was an ISB agent at the time of the Purge, and after the fall of the Empire, he continued to lead a remnant of Imperial troops. His current project revolved around some kind of genetic experimentation, which brought Grogu to his attention. That was why he kidnapped the child on Tython.
Moff Gideon Had a Plan for Everything... Except Luke
Because Din Djarin swore to protect Grogu, he rallied his troops, hunted down Moff Gideon and readied himself for combat. That was the setup going into The Mandalorian's Season 2 finale. Djarin was determined to have his way, regardless of what stood in front of him. Even when Moff Gideon personally confronted him with a lightsaber, Djarin defended himself admirably and won the duel. In so doing, he took Gideon prisoner and won possession of the Darksaber.
Even after losing, however, Moff Gideon still exuded confidence, and when he got to the ship's bridge, he told everyone why. An entire platoon of Dark Troopers was going to break through the blast doors and kill all of them. After fighting a single Dark Trooper earlier in the episode, Djarin knew that Gideon was not bluffing. However, just as the troopers were about to break down the door, something unexpected happened that changed the entire conflict, and the look on Moff Gideon's face said it all.
When a single X-wing approached their ship, everyone on the bridge was slightly confused and even sarcastic about what one additional soldier could accomplish. Then Bo-Katan looked at the monitor and, in utter disbelief, said that it was a Jedi. As soon as she said the word Jedi, Moff Gideon was clearly terrified. Without seeing him, meeting him or even knowing that it was Luke, Gideon grabbed a blaster and tried to kill Grogu and himself.
Luke Skywalker's Legend Terrified Moff Gideon
Moff Gideon was not just afraid of being taken captive. He was afraid of meeting the legend that was Luke Skywalker. At this point in Star Wars history, Jedi were still scarce, so when he heard that a Jedi was there, he must have known exactly who it was. To an Imperial officer, this Jedi did nothing but inspire terror. In a few short years, Luke had brought down the Empire, blown up two Death Stars, killed the Emperor and somehow gotten rid of Darth Vader. So, while Moff Gideon's terror might seem dramatic at first, it was completely warranted.
In the Star Wars Legends novel The Cestus Deception, by Steven Barnes, Mace Windu once said, "The maintenance of social order requires both myth and reality … And the myth has been fractured: only the reality remains." He meant very plainly that during the Clone Wars and immediately following it, Darth Sidious went to extreme measures to vilify the Jedi and make them seem like warmongers and power-hungry traitors. They were still fighting for peace and justice, but when the public didn't believe it, it was difficult to make any progress.
That is what Luke was changing. The stories of his heroics had clearly spread across the galaxy over the last five years, as he was building his own legend. As The Mandalorian shows, Moff Gideon was afraid of that legend. If someone could kill the Emperor, then Gideon knew that that person must be immensely powerful. In effect, Luke was taking Darth Sidious' lies and redefining what it meant to be a Jedi, along with re-establishing the hope of peace and justice in the galaxy.