Mr Bingley's description was "perfick". It's a bit out of season but here is some more information:

Christmas Crackers

The Christmas cracker was invented in 1847 by Tom Smith, a baker of wedding cakes from Clerkenwell, London.

On a trip to Paris in 1840 Smith discovered the "bon-bon," a sugared almond wrapped in a twist of paper. Back in London, his "new" sweets became quite popular. When he noticed that young men were buying them for their sweethearts he began to place love mottoes on small slips of paper inside the wrapping. In 1846, standing at his fireplace, the crackle of a log gave him the flash of inspiration for the cracker. After much experimentation (and burning hands and furniture), he got it right. He pasted small strips of saltpetre to two strips of thin card. As the cards were pulled away from each other, the friction created a crack and a spark. (The concept is still used today.) By 1947, Tom Smith's cracking sweets were the fashion. They were first known as "Cosaques" after the cracking of the Cossack's whips as they rode through Paris during the Franco-Prussian wars. The name stuck for about another decade before simply being known as Christmas crackers.

The cracker concept was hot and others were quick to copy Smith's idea. The outer wrapper became the showcase in the fight for market share, with more varied and colourful designs. They were also being sold 12, sometimes 6, in a matching box. It forced Smith to head for the patent office to protect his design, and his company, called the Tom Smith Crackers.

By the 1880s, Smith's company produced more than a hundred cracker designs. By 1900, Smith sold more than 13 million crackers. They were being used not just at Christmas, but at just about any festive occasion, including fairs and coronations.

In 1933, printed foil wrappers with individual designs were launched. The contents became more complicated, some featuring glass pendants, brooches, bracelets and other jewellery.

from http://www.didyouknow.com/xmas/xmascrackers.htm

Here's how to make one:
http://www.imagitek.com/xmas/crafts/cracker.html
This site:
http://www.absolutelycrackers.com
includes the following gem:
A CHRISTMAS cracker-maker has had to hire a joke checker - because Americans don't get our gags.
The new recruit has to weed out "peculiarly English" jokes after complaints from U.S. distributors.
Gags they didn't get include:
Q: What mint can't you eat? A: The Royal Mint.
Q: Where do policemen live? A: Letsbe Avenue.
Q: Which panto is set in a chemist's shop? A: Puss in Boots.
Boss Keith Langford, 30, of Absolutely Crackers in Milton Keynes, Bucks, said: "We don't want to upset the Americans. We do a lot of business with them."
Published in The Sun (UK)
10 December 1998