The Truth of It All
{Sage's History/Family}
Hagoromo was a monk, he was the son of Princess Kaguya Ootsutsuki whom ate the God Tree's forbidden fruit and gained the power to stop armies, a power that Hagoromo would inherit when she conceived him. The God Tree, Shinju, was angry however and came to take back its power, so Hagoromo used his power to stop the shinju by sealing it in himself. People then worshiped him as a god and he created his own religion, Ninshuu, and taught ninjutsu to people in order to better their lives and wished to bring peace to the world. He also had two sons, the elder inherited Hagoromo's spiritual energy and the power of his eyes, while his younger son inherited his physical energy and the power of his body.
Utilizing Chakra
Sadly he began to die before he could achieve his dream and he decided to entrust one of his sons to continue his dreams. The older son believed that peace could only be attained through might, while the younger believed peace could be achieved through love, and with that Hagoromo chose his younger son to carry on his legacy. Then finally, realizing that his death would release the God Tree back into the world, he divided it's chakra into nine pieces, forming the Bijuu, and he created the moon which trapped Daidarabotchi's lifeless husk inside of it.
Passing On
However after his death, people turned ninjutsu into a weapon and used it to wage war against each other. On top of that, his older son attacked his younger son out of jealousy, believing that he was Hagoromo's rightful heir. This formed a rivalry between them and their descendants, the Uchiha and the Senju that spanned centuries. Ultimately, Hagoromo and his accomplishments were eventually considered fairy-tales.
{Sage's Accomplishments/Abilities}
Hagoromo was the first to discover ninjutsu and taught it's usage to others; the first he was known to have created was a fuuinjutsu to seal Daidarabotchi's within himself to imprison it and subsequently gained its powers. This is the same seal that's used currently to seal the Bijuus.
He also possesses the Rinnegan that lets him see chakra and gives him access to all 6 chakra types: Katon, Fuuton, Raiton, Doton, Suiton, and Onmyoton. In addition, it's most notable abilities are its gravity manipulation, body modification, telepathy, summoning, chakra absorption, and resurrection; each based on one of the 6 paths of Buddhist reincarnation in which he derives his title from.
He also possessed Banbutsu Sozo, a jutsu that allowed him to use his spiritual energy to make forms and then use physical energy to give those forms substance; literally turning fantasy into reality. He used this jutsu for many things, including creating the Bijuu from Daidarabotchi's chakra.
In addition, Rikudou was said to possess five sacred treasures which would come into the possession of two of his suspected decedents, the Gold and Silver Bros. Three of the items work together to seal people: the "Golden Canopy Rope" paralyzes and extracts the soul upon contact, the "Seven Star Sword" cuts the soul free and curses it, and upon activating the curse the "Crimson Gourd" absorbs the person whole; the curse being not to say the word you use the most, although you'll also be sealed if you remain silent for too long or say words that sound like your most used word. Another item is the "Banana Palm Fan," capable of releasing any of the five elements with a swing, and finally there's the "Amber Purifying Pot" that's capable of sealing someone by getting them to respond to you.
The drawback to these items is that they require a large amount of chakra to use, and prolonged use would kill an average person.
Hagoromo is the only being to master the rinnegan.
{Sage's Heritage}
It is impossible to overestimate Hagoromo's effect on the course of the ninja world's development. As the first true ninja, he created the ninja world, revolutionized it, and left it forever changed. As his disciples grew continuously greater in number, it led to the creation of ninja clans, and later, ninja villages.
As time passed, Hagoromo ultimately faded into legend. His bloodline was divided into the descendants of his two children, who would eventually form the Senju clan — and through distant relations the Uzumaki clan — and the Uchiha clan. As a result of Madara Uchiha acquiring and integrating Senju DNA into his body, the Rinnegan would later resurface. Though he noted nothing happened initially after the DNA integration, when he neared the end of his natural lifespan, the dōjutsu finally awakened. With that, Madara Uchiha managed to undo Hagoromo's seal on the vessel of the Ten-Tails by summoning it from the moon and formulated the Eye of the Moon Plan to become the Ten-Tails' new jinchūriki.
Because Nagato, a pupil of Jiraiya's, manifested the Rinnegan, the latter suspected Nagato to be the reincarnation of the Sage himself. In reality, Madara secretly transplanted his own Rinnegan to the boy, without his knowledge. Nagato, as a descendant of the Senju-related Uzumaki clan, was the perfect host for the dōjutsu; however, Nagato noted that his own power would have paled in comparison to the Sage's. Others, including Kakashi Hatake, noted that the Rinnegan was viewed merely as a mutation. Kurama and Son Gokū's recognition of Hagoromo (and the tailed beasts' apparent status as the only survivors from Hagoromo's lifetime), lends credibility to his existence.
Before he died, Hagoromo told the young tailed beasts that two would come and lead them on the right path. The tailed beasts would all later come to agree that these people are Naruto Uzumaki & Haru Senju.
Little did anyone know that both of these boys would be the exact two the Sage was looking for to carry out his dream and plans. These two were destined to fight alongside each other in order to bring true peace to this world and end all of its suffering not only for the people but the Bijuu themselves…