She is a part of a story as told by Louie to Elmo to explain why people leave cookies out for Santa Claus, set in Sesame Street of the 19th Century. Holly occupies an enchanted curiosity shop with Bella, who both monitor Christmas cheer in unjolly areas. Holly's purpose is to alert the arrival of Santa Claus, measuring Christmas cheer using her five lights. If all five are lit, it signals the arrival of Santa.
Elmo's ancestor (also named Elmo) spends the special trying to spread kindess and Christmas cheer to get Santa to arrival, not being an easy task given the street's current bad reputation. Holly's lights slowly light up and it is not until Cookie Monster's ancestor (also named Cookie Monster) shares his cookies that she completely lights up, allowing Santa to come.