The Talmud tells us that beginning with the 25th of Kislev, eight days of Chanukah are observed, during which no eulogies are delivered, nor is fasting permitted. For when the Greeks entered the Sanctuary, they defiled all the oils, and when the Hasmoneans (the Maccabees) defeated them, they searched and found only one remaining jar of oil with the seal of the Kohen Gadol (the High Priest). Although it contained only enough oil to burn for one day, a miracle occurred, and the oil burned eight days. A year later the Rabbis designated these days as Yomim Tovim (Holidays) on which praise and thanksgiving were to be said. (Tractate Shabbat 21)
The Greek's Harsh Decrees:
During the Second Temple period, the Greek kings outlawed the Jewish religion, forbade them to engage in the study of Torah and the practice of mitzvot, and ravaged and defiled all that had been ritually pure. The Hasmoneans were finally able to subdue the enemy, whereby they designated a king to rule over Israel which lasted for more than 200 years. The Sages of that generation therefore decreed, that the eight days beginning with the 25th of Kislev should be days of rejoicing; that Hallel (praise) be recited and that lights be lit in the entrance to their homes each of the eight nights, in order to publicize the miracle. These days were called Chanukah, that is to say Chanu Kaf-Hay (they rested on the 25th), for on the 25th, they rested from their enemies. The above expression of the Talmud: "They made it a Yom Tov for praise and thanksgiving" refers to the literal recitaiton of Hallel (praise) and therefore, the complete Hallel is said during schararit (morning prayers) all eight days of Chanukah. The term "thanksgiving" refers to al hanisim, which is included in each shmoneh esreh (silent meditation, amidah) during these days as well, as well as in birkat hamazon (grace after meals).
What may one use to light the Chanukah candles?
The preferred way to perform the mitzvah is to light the Chanukah menorah with pure olive oil and cotton wicks, since their light is pure and it causes us to remember the light of the Menorah which was lit with olive oil. All other oils and wicks are permissible if their light is pure and does not flicker. One may also use candles made of wax. One must be careful and make sure the lights stay lit for about a half an hour or as long as people coming home from the marketplace would be able to see them. If one is using wax candles specifically, it is a good idea to put them in the freezer before use since it lengthens their burning time. The menorah itself should be pretty and can be made of metal or glass. An earthenware holder is permissible but may only be used once while it is still new. After one usage it becomes unclean and may not be used for the next night. A wick which was used one night may be used on succeeding nights as well. The same is true of the remaining oil or of the remainder of wax candles. If one is lighting with oil, one way to save on the mess and expense of using many cotton wicks is to pull the part of the wick that is black up from the holder and continue to use the rest of the wick and continue this for many succeeding nights until the wick becomes very small.
One must also be careful with the menorah that one chooses. There are many menorah's on the market that although aesthetically beautiful, are not permitted to be used. For example, the eight candles of the menorah must be in a straight line with the shamash a little bit above them. Any menorah which is fancily shaped in a circle or square... is not permitted to be used since the candles must be in a straight line and none may be higher or lower than the others. There must also be enough space between one candle and another so that the flames of each are not intermingled.
How does one light the lights?
On the first night of Chanukah, one light is lit and on each successive night another light is added until the eighth night when all the lights are lit. When one lights on the first night, one lights the one on the extreme right. The following night he adds the one immediately to the left and kindles it first. He then turns to the right and kindles the light of the previous night. He follows the same procedure each night always adding from right to left but always lighting from left to right. The reason for this procedure is that the additional light recalls the greatness and growth of the miracle.
On the first night of Chanukah, three blessings are recited before the lights are kindled:(1) "Baruch ata Hashem, Elokenu melech ha'olam, asher kidshanu b'mitzvotav v'tzivanu l'hadlik ner shel Chanukah." (Blessed are You, L-rd our G-d, King of the Universe, Who has sanctified us with His commandments and has commanded us to light the Chanukah lights.) (2) "Baruch ata Hashem, Elokenu melech ha'olam, she'asah nisim la'avotenu, bayamim hahem bazeman hazeh." (Blessed are You, L-rd our G-d, King of the Universe, Who has doen miracles for our fathers in days gone by, at this time.) (3) "Baruch ata Hashem, Elokenu melech ha'olam, shehecheyanu, vekiyemanu vehigi'anu lazeman hazeh." (Blessed are You, L-rd our G-d, King of the Universe, Who has given us life, and has sustained us, and has brought us to this time.) After one makes these three blessings, he kindles the light. On the remaining nights, one only recites the first two blessings and does not say "shecheyanu." If one was prevented from lighting the candles on the first night or forgot to say shecheyanu, he may say it the next time he kindles the lights.
There is also a custom of using an extra candle, the shamash to light the other candles. The shamash may only be used for lighting the other candles and one may derive benefit from its light. The Chanukah lights themselves, however, may not be used for any other purpose while they are burning for the purpose of the mitzvah. One should preferably have other lights on in the house in order that one does not run into this problem.
After the first light is kindled, "hanerot halalu" is said and the rest of the lights can now be lit. After the lights have been kindled, Chanukah songs are sung and foods containing oil, such as jelly donuts are eaten. Every custom according to the place in which one lives!