The pulling of Christmas crackers often accompanies food on Christmas Day. Invented by a London baker in 1846, a cracker is a brightly coloured paper tube, twisted at both ends, which contains a party hat, riddle and toy or other trinket. When it is pulled by two people it gives out a crack as its contents are dispersed.
The wearing of the paper hats and crowns is a British tradition that is often seen in films of that era. And yes, it's looks goofy to us today.