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Change of y to i:

Words ending in y preceded by a consonant, change the y to i and add es or ed.

Words:

puppy - puppies
army - armies
supply - supplies
sky - skies
party - parties
library - libraries
rely - relies
marry - marries 
theory - theories
study - studies
apply - applies

Words ending in y preceded by a vowel, just add s Words:

boy - boys
toy - toys
employ - employs
valley - valleys
delay - delays
convey - conveys
pray - prays
stay - stays

Adding a suffix:

Words ending in y before a consonant usually change the y to i before a suffix. 

Words:

happy - happiness
beauty - beautiful
busy - business
mystery - mysterious
luxury - luxurious
fancy - fanciful
envy - envious
mercy - merciless
ordinary - ordinarily
vary - variance
apply - appliance

But verbs ending in y do not drop the y before ing Words:

study - studying
hurry - hurrying
relay - relaying
pray - praying
portray - portraying
apply - applying