Legend has it that the Ghost Festival comes from the "Legend of Mulian.” When Mulian was ten years old, he was appointed to be a monk by Kshitigarbha. A few years later, his mother died and was sent to the Hell because of the things she did in life such as beating monks and wasting food. When Mulian knew that his mother was suffering from the punishment of “hanging upside down” in the sixth level of the Hell, (Taiwanese religion says that there are 18 levels of Hell) he brought food to his mother. Mulian tried to feed his mother but the food turned into flame whenever it was close to her month. Mulian went to Sakyamuni for help. Sakyamuni told Mulian about her mother’s sins and told him that if he wanted to help his mother, he must prepare vegetable foods for all the spirits on the first day of the seventh month of the lunar calendar. Mulian did it and saved his mother from being a "hungry ghost."
A teenager burns money
The seventh month of the lunar calendar is now called Ghost Month. During Ghost Month the gates of Hell are opened and the spirits are allowed a month of freedom in the living world. July 1st on the lunar calendar (In 2010, that was August 10th) is the start of Ghost month.
This is a time of honoring the ancestors. One way of honoring the ancestors ids to place food on a table outside your home. The food is there for the ancestors to eat so that they will visit. One thing I think is interesting to note is that the ancestors are not invited into the house. Businessmen also make offerings in front of their businesses for good luck. Many people in Taiwan fear the ghosts and are afraid that they will be cursed if they do not provide offerings for the ancestors during this time. The main days for offerings are the 1st, the 15th and the 30th of July (Lunar Calendar).
Ghost month is really a part of ancestor worship. In Taiwan it is believed that when you die you go to Hell. Hell is the place where you wait to be reincarnated. But the people also believe that while you are there you have the same needs as on earth. For example paper “money” is purchased at local stores or at the temple that is burned in an incinerator. It is believed that the smoke carries the essence of the money to the ancestors. You often see people out in front of their homes burning money, paper clothing and other things for their ancestors.
A woman with her food offering
They are taught beginning at a very young age to care for their ancestors, so you see children helping their parents to burn these things. In addition to the burning of goods, fruit, food, even alcoholic beverages are offered to the ancestors, people burn incense and pray. The idea is to provide them with the things they enjoyed on earth.
It is very important to remember all of the ancestors so in many homes you will find a lineage posted somewhere in the house. A friend of mine has a lineage that goes back for 24 generations.