I'm thankful your neighbor feels free to ask you about this, and I hope you'll see this as an opportunity not only to befriend her, but to introduce her to the greatest friend anyone can ever have: Jesus Christ.
The first thing you'll want to tell her is that Christmas commemorates the birth of Jesus Christ. He was born (the Bible says) into a very poor family slightly over 2,000 years ago. When He grew up, He taught people about God and His love for them -- but some became threatened by His popularity and arranged to have Him put to death. They thought that was the end of His influence -- but it wasn't, because on the third day He came back to life by the power of God. Even now He prays for us in heaven, and lives within us by His Spirit as we open our lives to Him.
How is this possible? It's possible (you'll want to tell her) because of who Jesus was: God in human flesh. At Christmas God came down from heaven to live with us! As the Bible says, "The Word was God.... (and) lived for a while among us" (John 1:1,14).
Why did Jesus do this? He did it because God loves us, and wanted to make it possible for us to be forgiven of our sins and go to Heaven when we die. Make sure of your commitment to Christ -- and then pray for your neighbor, that she, too, will come to know Christ as her Savior and Lord.