There are a few ways you could go:
For my tree decoration, I decided to use conductive thread, felt, snaps, a 3V watch battery with holder and LEDs. We found all of these items in the Adafruit Candle LED bow kit that we recycled from a previous program. This is a project to directly sew onto any plain sweater (since the ugly sweaters have probably all been scooped up from the thrift stores by now) or make it a pin and not do any permanent damage to your sweater. One downside to using a 3v battery holder, there is no on/off switch so I used a dark green felt piece for a snap to connect/disconnect the circuit.
I highly advise to plan out your conductive path and LED placement on paper beforehand. It's a bummer to hand sew an entire pathway only to find that nothing lines up right and you have to take it all out and start over. For this project, there were 3 threads. One is the negative thread that goes from the top of the tree straight down through all the negative leads of the LED to the negative side of the battery holder. Second thread on the dark green fabric piece from the positive side of the battery holder to the male snap and lastly, the third thread from the top of the tree straight down through all the positive leads of the LED to end with a female snap on the light green fabric.
Tip: Be careful of your needle size, they don't always fit through the tiny side holes of the 3V battery holder so it's good to use the ones with the adafruit kit.
After making a few of these: Christmas ball, gingerbread man, Santa head, etc. you could haphazardly pin them all onto your sweater (eyes closed) and TAD-AH! You just learned circuitry while crafting and sure to win a prize in the ugly sweater contest. Next blog post will be building electric pieces on your ugly sweater using littleBits, magnetic snap together circuits that I love, inspired by their Ugly Sweater Hack Project.