A holiday celebrates a person, anniversary, religious belief or other occasion. You might observe the Indian holiday of Holi, and take a week off of work to celebrate with your family.
A holiday is an occasion recognized by the state or federal government and marked on calendars, like Thanksgiving in the United States. Most holidays are celebratory and fun, and just about all of them mean no work or school. You can also take a holiday, or vacation. Holiday comes from "holy" and "day," meaning a religious festival, and the word was even pronounced that way until the sixteenth century.