I don't know how recently you started this town, but if you've been talking to your villagers throughout the month of December they may have given you hints about what they wanted for Toy Day. Example: Saying they want furniture or something yellow.
On Toy Day, you find Jingle and talk to him, then come back dressed as Santa. There are 5 clothing items for this: Santa Hat, Santa Coat, Santa Pants, Santa Beard, and Santa Boots which are all sold by the Able Sisters and Kicks. I don't think the boots are required if you haven't unlocked Kicks yet.
Jingle will then give you his toy sack and you go around to all the villagers and try to give them the present they want based on the clues they gave you earlier in the month. After you're done, return to Jingle and he'll give you a reward. If you get them all right, Jingle sends you his picture in the mail the next day.