A celebration is a joyful diversion. Your math class might have a celebration when you learn that the midterm has been postponed for a week.
A celebration can be a festive party commemorating some joyous occasion, like your grandparents' fiftieth anniversary celebration or your brother's birthday celebration. It can also be a less formal marking of a happy event, like the arrival of your new puppy. Another meaning of celebration is a religious ceremony, such as communion or a bar mitzvah.