My maid Elvira told me that last year she prepared two ofrendas, one to honor her deceased mother and another in memory of her nephew, who at age 11, was killed in an accident.
While there is some regional variation in how ofrendas are presented, in general, they contain photographs of the loved one, their favorite foods and drinks, candles, religious statues, cempasuchiles (yellow marigolds), copal, a type of incense that is used in rituals for purification or sanctification, and papel picado, colored paper hand-cut with symbols unique to the Day of the Dead.
Yellow or orange cempasuchiles, marigolds, are called the "flowers of the dead" because they are believed to attract the souls of the deceased to join the living during the celebration. Sometimes the family will scatter marigold petals to form a path between the house and the cemetery. This flower path is believed to guide souls to the feast and then back to the cemetery.
(Incidentally, during any other time of year, it would be a cultural faux pas to bring marigolds as a gift for the hostess of a dinner party here. So, if you are doing business in Mexico or another country, research the symbolism of gifts, or you may sabotage the business deal!)
Preparation begins months before the festival. Families start early to acquire goods to place on the ofrendas, and a few weeks before early November markets start selling the traditional Day of the Dead goods. This includes sugar candies made in the shape of skulls (sugar skulls), paper mache puppets and other figures of skeletons, such as El Catrin and La Catrina (male and female skeletons) and pan de muerto ("bread of the dead"), a special type of bread traditionally baked by men, but now usually purchased at the bakery.
Finally, the ritual has a community-wide component, which reaffirms social relationships. Usually this takes the form of a parade. Here in San Miguel de Allende they even have a contest for the best La Catrina costume. You see, during this one day per year, La Catrina comes to life!
Here is a video of the Day of the Dead celebration in Oaxaca, Mexico.