The electronic and geometrical structures of nanoclusters of MgO have been investigated by density functional calculations. The dependence of the properties on size is studied. Defect formation energies are also calculated for various ionic and atomic vacancies. A study of the adsorption of formaldehyde at various sites has shown that the lower coordination sites are preferred so much that, in cases where the nanocluster can adapt itself to expose more of the lower coordination sites, it readily does so. A strong four-membered ring involving the carbonyl group and surface MgO units is formed. This results in a weakening of the carbonyl bond to almost a single bond. The adsorbed species is formate-like in structure, the second CO bond being formed with a surface oxide. The surface Mg-O bonds in the four-center complex are also considerably weakened. The adsorption process is highly exothermic. An investigation of adsorption of formaldehyde at defect sites has revealed that many interesting adsorption products are formed depending on the nature of the vacancy. Adsorption at these positions releases more energy than at perfect MgO surfaces.