The holiday of Cinco De Mayo, The 5th Of May, commemorates the victory of the Mexican militia over the French army at The Battle Of Puebla in 1862. The battle at Puebla happened at a violent and chaotic time in Mexico's history. Mexico had finally gained independence from Spain in 1821 after a difficult and bloody struggle, and a number of internal political takeovers and wars, including the Mexican-American War (1846-1848) and the Mexican Civil War of 1858, had ruined the national economy.
During this period of struggle Mexico had accumulated heavy debts to several nations, including Spain, England and France, who were demanding repayment. Similar debt to the U.S. was previously settled after the Mexican-American War. France was eager to expand its empire at that time, and used the debt issue to move forward with goals of establishing its own leadership in Mexico. Realizing France's intent of empire expansion, Spain and England withdrew their support. When Mexico finally stopped making any loan payments, France took action on its own to install Napoleon III's relative, Archduke Maximilian of Austria, as ruler of Mexico.
France invaded at the gulf coast of Mexico along the state of Veracruz and began to march toward Mexico City, a distance of less than 600 miles. American President Abraham Lincoln was sympathetic to Mexico's cause - for which he is honored in Mexico - but the U.S. was involved in its own Civil War at the time and was unable to provide any direct assistance.
Marching on toward Mexico City, the French army encountered strong resistance near Puebla at the Mexican forts of Loreto and Guadalupe. Lead by Mexican General Ignacio Zaragoza Seguin, a smaller, poorly armed militia estimated at 4,500 men were able to stop and defeat a well outfitted French army of 6,500 soldiers, which stopped the invasion of the country. The victory was a glorious moment for Mexican patriots, which at the time helped to develop a needed sense of national unity, and is the cause for the historical date's celebration.
Unfortunately, the victory was short lived. Upon hearing the bad news, Napoleon III found an excuse to send more troops overseas to try and invade Mexico again, even against the wishes of the French populace. 30,000 more troops and a full year later, the French were eventually able to depose the Mexican army, take over Mexico City and install Maximilian as the ruler of Mexico.
Maximilian's rule of Mexico was also short lived, from 1864 to 1867. With the American Civil War now over, the U.S. began to provide more political and military assistance to Mexico to expel the French, after which Maximilian was executed by the Mexicans - his bullet riddled shirt is kept at the museum at Chapultepec Castle in Mexico City. So despite the eventual French invasion of Mexico City, Cinco de Mayo honors the bravery and victory of General Zaragoza's smaller, outnumbered militia at the Battle of Puebla in 1862.
For the most part, the holiday of Cinco de Mayo is more of a regional holiday in Mexico, celebrated most vigorously in the state of Puebla. There is some limited recognition of the holiday throughout the country with different levels of enthusiasm, but it's nothing like that found in Puebla.
Celebrating Cinco de Mayo has also become increasingly popular along the U.S.- Mexico border, and in parts of the U.S. that have a high population of people with a Mexican heritage.