It says that in the ancient age, there was a monster call Nian(or Year), with two acuminate horns, very ferocious, it lives in deep see, only crawl to the land every last night of the year, hurt people and animals. So every in that night, all the villagers will hide inside the mountains, to get away from Nian's hurt.
One last night of the year, villagers were preparing to leave like every years before, here comes a old man with all white hairs, he told a old woman, if she allowed to let him stay one night in her house, he can definitely can drive Nian away, but nobody give him a shit, they left as usual, the old man insisted to stay.
When the Nian rushed into the village that night, suddenly the old man fired firecrackers, Nian got frighten, and dare not to move forward even one step, Nian has fear with red color, fire flash and explodents. One gate opened, inside the yard, a old man in red laughed in a big voice, Nian left as much as it could while it saw the old man.
In the second day, villagers returned to the village, they found everything are still what they was. So they knew the old man with white hair is a god, he came to help them to drive Nian away, and they knew the three issues to drive Nian away. From that day on, in each last night of the year, every home stick red papers with nice words on them beside their gates, and every home fire firecrackers, keep light for a whole night, wait to the next year's first day.
This custom go round, now it becames china traditional most important and most ceremonious festival. And this day we called in chinese "Guo Nian", means the Nian past(Year past).