This is the question that has plagued man kind for centuries...well, maybe not that long.
The concept of how we get the lights to "go along" with the music is pretty simply, putting it into practice is where is becomes difficult. The company that makes the components for this is call Light-O-Rama. Light-O-Rama can supply you with everything you need, from the software, the hardware, the cables...everything but the lights. Then the process starts right where your sitting now, at a computer. At the computer, you load a piece of software called the Sequence Editor. Within that program you load in whatever song's you want, and then begin to sequence them. You can either make the lights fade up, down, twinkle, shimmer, turn on quick, turn off quick...the possibilities only end where your imagination ends. A sequence generally looks like the picture below.

understand what all these terms mean. A channel is one of the outlets that comes out of the controller. A typical controller has 16 channels, 8 channels per side. Once you have decorated everything your going to decorate, its time to get miles upon miles of extension cords and plug them into the channels. The picture to the right shows what the CTB16PC board looks like.
Basically anything that takes power, can be controlled by the controller. The important thing to remember is not to exceed 8amps (2amps if heat sinks are not installed) per channel. People have even taken inflatable's and split the power to the motor (fan), and lights. That way the can keep power to the inflatable so it stays inflated, and control the lights with controller. As I said before, the possibilities only end where you imagination stops!
To broadcast the music, I use a Ramsey FM transmitter. The FCC has different rules and regulations about how powerful the transmitter can be. I use the Ramsey FM25B There are different transmitters out there, it really depends on how much money you want to spend and the features you want. The transmitter is set to a frequency that is not used in my area, 95.9 fm.
Key things to remember though...
1. PLAN, PLAN, PLAN
2. Know the amount of amps per channel
3. PLAN, PLAN, PLAN
4. Start small and work your way up to the grand displays
5. Did I mention...PLAN, PLAN, PLAN!!
This is probably one of the most famous videos demonstrating what the Light-O-Rama software can do. This video is from 2004 and is the show that Carson Williams put on. The house has 16,000 lights and 88 LOR Channels. Many people say this is why Light-O-Rama is so popular today!