Chinese New Year's Day is called Guo Nian (过年) in Chinese, which can mean 'celebrate (a new) year' or 'overcome Nian'. The character 年 (Nián) could mean a 'year' or 'the monster Nian'.
In ancient times, there was a monster named Nian (年, or Nianshou 年兽) with a long head and sharp horns. It dwelled deep in the sea all year round and only showed up every New Year’s Eve to eat people and livestock in nearby villages.
Therefore, on the day of New Year's Eve, people would flee to remote mountains to avoid being harmed by the monster. People had lived in fear of this monster until an old man with white hair and a ruddy complexion visited the village.
He refused to hide in the mountains along with the villagers, but successfully scared away the monster by pasting red papers on doors, burning bamboo to make a loud cracking sound (precursor to firecrackers), lighting candles in the houses, and wearing red clothes. When the villagers came back, they were surprised to discover that the village had not been destroyed.
After that, every New Year's Eve, people did as the old man instructed and the monster Nian never showed up again. This tradition has been continued until the present time and has become an important way to celebrate the arrival of the new year.
Click to see the History of Chinese New Year.