As for the song itself, it's from episode 19 the christmas party and quite possibly the best single episode of the entire story. It brings a lot of things to a head as all of the various characters end up pulling the emotional equivalent of the gift of the magi.
I didn't like the translated lyrics included in the video as much as those that came with the subbed anime. One thing you realize is that subbing seems to be more of an art than a science and you seldom get the exact same result.
Now it’s Christmas!
There are smiles everywhere
Here’s a party night from me to you
Now it’s Christmas!
Everyone is making their wish
I promise you…
… A HOLY, HOLY NIGHT!
This year’s Christmas is definitely special
A lonely Christmas is too boring
The smiles are what illuminates it
Look, I’ll decorate it for you
It’s swaying and flickering
And everyone is holding hands
Sparkling and twinkling
Everyone’s looking up at the stars
Now it’s Christmas!
There are smiles everywhere
Here’s a party night from me to you
Now it’s Christmas!
Everyone is making their wish
I promise you…
… a holy, holy…
… night!
It's also funny looking at the various youtube comments for the video and on forums. There are huge numbers of people who all say that Toradora and this episode in particular made them cry, which I find sorta amazing. Maybe I'm just too emotionally congested. If you can cry over something like this, how could you possibly stop with everything else.