A lunar bar is a bar of refined lunar ore. It is created from smelting lunar ore, granting 6 smithing experience, which is used to smith into a lunar helm in the quest Lunar Diplomacy. To receive the lunar ore, a person would have to mine a stalagmite in the caves underneath Lunar Isle.
During the quest, the best way to make the lunar helm in the fastest possible manner is to use the "Superheat Ore" spell, then head over to Seers' Village and use the lunar bar on the anvil there. However, this bar does not require a specific Smithing level to smelt.
It can be made multiple times during the quest, but when the quest is complete it is no longer possible to obtain another lunar ore and smelt it. As such, some people deliberately leave the quest incomplete in order to be able to smith another lunar helm for free when they lose a helmet (not recommended because you get access to Lunar spells upon completion of the quest.)