This event unlocks after you have unlocked 20 or more villagers. Visit the festival area between 8:00 pm and 10:00 pm to watch a firework show with all of the villagers. You can't ask someone to watch the fireworks with you if you're single, but you will earn +1000 FP with all of the villagers if you attend.
After the show and you leave the festival grounds, you will appear back at your farmhouse at 11:00 pm.
If you have a sweetheart, he or she will appear and comment on the show as the fireworks appear.