Have you ever seen someone with an iron horseshoe hung above the front door of their house? The story behind why people hang horseshoes above their doors goes all the way back to ancient times in 959 A.D. And as you already know, it all has to do with luck.
The lucky horseshoe is a big part of Irish folklore and history (despite being typically associated with western cowboy culture). The story of Dunstan and the horseshoe varies greatly depending on where you look. But the gist of the story is that in the 10th century, St. Dunstan (a blacksmith at the time) was visited by the devil himself. The hoofed devil asked for a horseshoe for himself. So then, Dunstan nailed a red hot horseshoe tightly on one of his hooves, and the devil howled in pain. The devil begged for Dunstan to remove it. Dunstan agreed under one condition -- the devil must respect the horseshoe and never enter any place where one was hung above the door.
Because of this, people believed that the horseshoe could keep evil spirits out of their homes, and thus bring in (or keep in) good fortune.
Good luck is also attributed to horseshoes because being a blacksmith was considered a lucky trade. Additionally, iron was deemed magical because it could withstand fire. You may also notice that on most horseshoes (and maybe even on horseshoe jewelry) have seven nails in them. Seven has always been referred to as a lucky number.
The tradition carried on, and people added onto to the legend of the horseshoe. In the middle ages, fear of witches ran rampant. It was said that witches were afraid of horses and their iron shoes. People thought that witches would never pass through a doorway with one hung above it, and people even nailed horseshoes to witch's coffins to keep them from coming out.
Today, you will still see people with them hung over doors, both inside and out, all around the world. Hanging a horseshoe facing upwards in a "U" shape is said to keep evil out and bring good luck into your home. Conversely, hanging it upside down will have luck flowing out of your home.
Whether you believe the legend or not, you have to admit, a horseshoe hanging above a door makes for interesting decor.