How It Works
There are a couple of key areas that go into making a cool animated light display. These are:
Light Controllers
Before I bought my first controller I looked around and decided that Light-O-Rama (LOR) had the best controllers for the price. You can mix and match controllers from different companies but I am sticking with LOR. They have excellent customer support. I had trouble with UPS and one of the controllers never made it to my house and LOR shipped another one to me the next day no charge. For Christmas 2007 I used two CTB-16-PC controllers. This is what they look like:
It has 16 "channels" and it comes rated for 15amps per 8 channels. For each channel you plug in a differnt group of lights. I upgraded the fuses in my controllers to 20amps/8ch and the input power cables to 10/3 rated wire. Normally you would not need to do this but I was on a budget and had to squeeze a lot of lights onto two controllers. I learned a lot about power from putting up Christmas lights!
PlanetChristmas has a great article about
figuring power needs if you would like to read more.
For Christmas 2008 I am adding 4 or 5 more controllers; this will make my total number of channels 96 or 112.
Computer
In all of the time it takes to put up my display most of that time is spent on the computer. The first thing you have to do is find good Christmas music. The most popular Christmas music to time lights to is made by the Trans-Siberian Orchestra. In 2007 I used 6 of their songs out of 7 total. In 2008 I will have a better mix. Once you find the songs you want for your display you can move on to sequencing.
In order to start sequencing you need to install some software. Many companies make software specifically for light controllers. I used the software that LOR makes because I had bought their hardware so why not use their software? The LOR software comes with a few different utilities. The primary three are the Sequence Editor, Hardware Utility, and Show Manager. First I will go over the sequence editor.
To create a musical sequence you first choose which song to sequence. During this process you can define how many channels you have and how you want to setup your timings. There are more options but they are not as important. For my timings I either use the Tapper Wizard or the Beat Wizard. The tapper wizard will play the song and you tap a key on your keyboard where you want an event to happen. The beat wizard will analyze your song and try to figure out the beat then insert an event for every beat. Once your events are setup a grid is displayed with one row for every channel and one column for every event. It looks like an excel spreadsheet. For each cell you then assign an effect. The types of effects are: on, off, fade up, fade down, shimmer, twinkle, and % of light. You can select multiple events and have the lights fade up or down over them. The process of assigning affects to events takes the most amount of time. This is what the editor looks like:

Using an animation with your sequence helps visualize what your display will look like. The animation takes a while to setup because you have to draw each channel on the canvas but it is worth it. It also saves power because you are testing it on your computer instead of actually using the lights.
Once you have all of your music sequenced you can create a playlist in the Show Manager. It is always running on your computer. You can tell it what songs you want to play on what days and at what time. Then it just comes on when it is supposed to! The Hardware Utility helps when you first get your controller. You can use it to test the hardware and figure out what channel each power cable is. Lastly, you connect your computer and light controller together using a standard ethernet cable. From the first controller you can link to a second controller and from the second controller to a third, and so on.
FM Transmitter
So how do people hear the music? You broadcast it over the radio! Just pick up an FM transmitter and hook it up to your computer like you would any speaker. There is a large variety of transmitters but I used the Ramsey FM25B. It was a kit that I had to solder. I must not have done it right because the range I got was about 30ft. You can also buy them preassembled and tested for a little more.
Usually the transmitter will let you choose a frequency to broadcast on. You have to go through all of the frequencies beforehand to find one that no one else is broadcasting on. It is illegal to broadcast over someone elses radio station. There is also a limit to the range you are allowed to broadcast but I forgot what it was. For 2008 I am upgrading to the Ramsey FM100B.
Community
None of this would be possible without a community of hobbyists. The PlanetChristmas forums is the best place to go if you need help, want to learn something new, or buy/sell Christmas stuff. PlanetChristmas also has a bi-yearly meeting called "PLUS" where all of the Christmas light show fanatics come together and share. Every year each state will also hold a mini PLUS organized by someone in the community. This year will be my first year going. On top of all this, many people have their light show websites, share videos, pictures, and techniques. We don't see it as a competition. Just a hobby. And we do it to celebrate Christmas and the birth of Jesus.