"Cinco de Mayo" commemorates Mexico's victory against the French at the Battle of Puebla on May 5th, 1862. Although the French invaders went on to capture Mexico City and occupy the nation until 1867, the victory was a great morale-booster for the Mexican struggle against the foreign intervention.
"Cinco de Mayo" is not a legal holiday in Mexico (except for the states of Puebla and Veracruz). Schools, however, are closed today. (It has been a very short school week for school children since May 1st... Labor Day... is a legal holiday.)
In the United States, Mexican-Americans began observing the day as a time to celebrate their heritage. Mexican restaurants and beer companies began promoting "Cinco de Mayo" up here as an occasion to boost sales. For many "gringos", it is a day to go out and drink margaritas or Mexican beer, just as St. Patrick's Day is an excuse to drink green beer.