Christmas lights actually came from the Christian tradition of decorating trees with candles which began in the 18th century. Tree lights didn’t become popular until the time of the 20th century when electricity was more widely available in the 1930's. There were early Christmas lights in the 1880’s, and in the UK ‘fairy lights’ started being used in 1882, when The Savoy Theatre were decorated in them - as it was the first building to be built that was entirely lit by electricity.
An associate of Thomas Edison was known for having the first electrically lit tree, then shops began to use then in window displays and from there it continued into houses. Then the USA beginning the style of outlining houses in lights rather than just having them on the tree became more popular.
Candle decorations are still around today but the initial tradition of candles on the tree was done by Christians to be the symbol of Christ being the light of the world. It began in early modern Germany and has over time, spread to all the celebrating countries. Lights are definitely now seen as a decorating tradition for most rather than an overtly religious practice.
The origin of these colours is said to come from the original Saint Nicholas, a bishop, as these were the type of colours their robes were made of. He brought gifts and money to families and it’s even said that he dropped the money down the chimney. This was in the 4th century. When St Nicholas reached Britain he was joined with the legend of Father Christmas creating one person. This Father Christmas type figure wore a green hooded cloak rather than a suit. So from here the two merged into one, which could be why there are green and red Santas. But then in Viking stories, Odin came in December giving gifts to rightful people, and he didn’t wear green or red, but a blue cloak! He also had a long white beard, which is obviously a huge part of the traditional image now. All three have been mixed into one- Santa! Different countries still have different styles, in the UK and USA this fur trimmed red suit is the most popular, but in other European countries he is still depicted to be more like a Saint wearing a type of red robe.