Well, I had a bunch of little preschoolers over to make ornaments. We made two different types: light bulb and foam sheet ornaments. Foam sheets are my new favorite thing. You can color it, glue it and even sew on it. And it's inexpensive - about $1 a sheet.
We made Christmas trees, gingerbread men, snowmen and candy canes out of the foam sheets. I used cookie cutters to trace and then cut out the shapes - this would be a good task for older kids, 6th grade and up. We used ribbon, pom-poms, foam shapes and markers to embellish the ornaments, then punched a hole in the top of each and laced it with ribbon. If you find yourself with a whole slew of them, consider creating a garland or adorning wrapped gifts with them.
The light bulb ornaments require a little more time and effort, but they are fun. Using burned out incandescents, we created penguins, but with a little imagination, you could come up with a host of holiday characters. You can also use this project as a reminder about recycling and using energy efficient compact florescent bulbs instead of the incandescent kind, which are cheaper, but don't last as long.
The principles of the foam and bulb ornaments could apply to other holidays as well, like Easter or Halloween crafting.