Samhain (pronounced sow-een) is the Celtic festival marking the end of the (Celtic) year.
Samhain, similar to Mexico’s Dia De los Muertos (Day of the Dead) believes that the veil between this world and the otherworld is thinnest at this time allowing spirits to pass through.
Christianity incorporated Samhain’s tradition of honouring the dead into their celebration of All Hallows (all saints) on November 1 and All Saints on November 2. The Celtic celebration took place the evening before as they believed night precedes day, which is why we celebrate on All Hallows Eve - Halloween.
The practice of dressing up in costume comes from the practice of disguising oneself as protection from harmful spirits. When the Irish emigrated to North America they brought their Halloween traditions with them, and it has now become one of the major annual holidays.
More information about Samhain can be found here.
Fun Note: The Indian festival of Diwali (Festival of Lights) happens at the same time as Samhain. Both festivals mark the beginning of the New Year, coincidence?