Introduction
Holika is an Asura woman, the sister of the king Hiranyakashipu, remembered for her attempt to kill her nephew Prahlada by fire and for the festival bonfire named after her.
This article follows the Puranic tradition. Where a detail differs between texts, the article says so.
The boon
Holika had received a boon, in most versions a special cloak, that made her immune to fire. Her brother Hiranyakashipu, unable to kill Prahlada by other means, asked her to carry the boy into a blazing fire while wearing this protection, so that Prahlada would burn and she would not.
The reversal
As she sat in the fire with Prahlada on her lap, the story says that the protection left her and moved to the boy instead, whether because it could only protect the wearer when used for a righteous purpose, or by Vishnu's direct intervention. Holika burned to death; Prahlada emerged unharmed.
Holika Dahan
The bonfires lit on the eve of the festival of Holi, called Holika Dahan, are explained by this story, as a commemoration of the victory of devotion and righteousness over malice, and of good over evil more generally.