Here is what Wikipedia has to say:
Holi is a religious spring festival celebrated by Hindus. Holi is also known as festival of Colours. Every year, thousands of Hindus participate in the festival Holi. The festival has many purposes. First and foremost, it celebrates the beginning of the new season, spring. It also has a religious purpose, commemorating many events that are present in Hindu mythology. Although it is the least religious holiday, it is probably one of the most exhilarating ones in existence. During this event, participants hold a bonfire, throw colored powder at each other, and celebrate wildly.
Originally, it was a festival that commemorated good harvests and the fertile land. In addition to celebrating the coming of spring, Holi has even greater purposes. Hindus believe it is a time of enjoying spring's abundant colors and saying farewell to winter.