It is meant to send off the old year and ring in the new.

Fireworks and firecrackers, known as Yanhua and Baozhu in Chinese, were originally made of real  bamboo. They were traditionally set off to frighten away ghosts and monsters so that the New Year would be free of them. Legend has it that long ago there was a monster that terrorized people and animals at the end of the year. It was discovered that this animal was frightened of loud noise, bright lights, and red color. At midnight, on the last day of the old year, these things are used to chase away the monster of the whole year. You can hear or see fireworks and firecrackers everywhere, and this usually lasts for a few hours. Some people will continue to play them occasionally through out the first half of the first lunar month. Traditionally fireworks are the sign of getting rid of the old and welcoming the new. Today, firecrackers are used to add to the merry-making of the occasion.