Obon is an annual Buddhist festival honoring the spirits of one's ancestors and is one of the most important traditions for Japanese people. This festival lasts for three days and depending on where in Japan you happen to be at, it is celebrated at different times of the year. It starts on July 13 (if going by Gregorian calendar), August 13 (solar calendar), or 13th day of the seventh month of the lunar calendar which would differ each year.
The most commonly celebrated time though is in August. Even though this is not a holiday business's customarily give these days off to workers. This time is one of the biggest traveling times of the year since many people return to their home towns to celebrate the festival with their families. Families visit gravesites to make offerings and Buddhist priests visit homes to chant sutras for the dead.
To prepare for Obon people clean their houses and offer a variety of food such as vegetables and fruits to the spirits of ancestors in front of butsudan (Buddhist families altar). The Butsudan is decorated with flowers and paper lanterns (chouchin). On the first day of Obon, chouchin are lit inside houses, and people go to their family's graves to call their ancestors' spirits back home. This practice is called mukaebon. In some regions, fires called mukaebi are lit at the entrances to homes to guide the ancestor's spirits.
On the last day of Obon, people bring the ancestor's spirits back to graves, hanging chouchin painted with the family crest to guide the ancestors' spirits. This practice is called okuribon. In some regions, fires called okuribi are lit at entrances of homes to send the ancestors' spirits on their way. The air in houses and cemeteries are full of smoke and the smell of incense called senko at this time. In some regions on the last day of Obon people send off ancestor's spirits with Toro Nagashi (floating paper lanterns) lit by a candle inside and floated down a river to the ocean.
In celebration of Obon, firework displays are common. Since it is summer people traditionally wear yukata, or light cotton kimonos. There are many types of celebrations during this festival - carnivals with rides, games, and summer festival food like watermelon.
In the Ranma anime Obon appears; Kogane Musashi who was a ghost trapped inside a notebook in the Furinkan High School store that Kuno, Ranma, and Akane had found. In her second appearance, she visited the Tendos for the festival of Obon. During this time she met Hikaru Gosunkugi who fell in love with her.