Day of the Dead (officially Nov. 2, but the preparations and festivities start days before) is not Mexican Halloween. It does involve skeletons, but Christmas in Mexico involves devils, so forget the iconic images and the coincidental dates. Skeletons represent the form of the dead, much like in the states we might think of angels. Candy skulls are gaily decorated and skeletons are elaborately dressed or portrayed having fun... these decorations are meant to put us in a joyous, celebratory mood. When the dead come back, we want to entertain them and let them know we miss them.
To me, Day of the Dead is a lot more like Thanksgiving combined with Memorial Day. You prepare traditional foods and buy traditional decorations and you have relatives over -- only they're dead. It's, in fact, a lovely holiday and we got completely into it by creating a traditional altar for Florence and Walter my deceased parents.
I painted a portrait of them, which took several days, and we bought the traditional flowers -- marigolds in particular -- tons of them are sold here the week before Day of the Dead. Other necessary elements are candles to light the way for the deceased to return; paper flags to represent air/spirits; a special round, sweet bread to share as communion; fruits and other foods the deceased might enjoy including some brandy for dad and some chocolates for mom (we also bought dad a couple of cigarettes, a very traditional thing to do). We included sugar skulls and even little sugar skeleton figures in coffins that sit up when you pull a string... think Easter candy.
I can't speak for all of Mexico. But we live in the state of Michoacan which has many towns with predominantly indigenous populations. In these places the cemetaries are decorated in elaborate carpets of flowers and candles and the families bring traditional foods and sit by their family graves all night singing and waiting for the dead to arrive. In the city, where we live, schools take over large plazas and students compete to make the best altars -- think homecoming floats. Stores, and restaurants all have altars.
Last night we went to bed after lighting the candles and copal incense and setting out the food on our altar. When I woke up at three, I was enchanted to see the paper flags fluttering and the flames dancing in front of the portrait of my parents. I didn't think twice before speaking aloud to them. I was so pleased to be able to have a way to invite them into my home for a little while. I think you can see from their smiles that they were happy too.