In game, you can discover the origins of the Winter Veil holiday and Greatfather/Great-Father Winter (Alliance and Horde spellings, respectively) by doing the quest The Reason for the Season. This leads to the quest The Feast of Winter Veil, wherein you are asked to read a book unsurprisingly named The Feast of Winter Veil. The Greatfather Winter we meet in this book is far from the red suited fellow we see sitting next to the Smokywood Pastures tree, but is rather a personification of winter itself, a force of primeval cold who covers the land in his frigid veil so that it might rest and be reborn in springtime.
Dwarves tend to see Greatfather Winter as "the personification of one of the ancients of Azeroth - the titans" according to the in-game book. This makes Hodir a prime candidate for the original inspiration for Greatfather Winter, for obvious reasons. He once held court at the Temple of Winter, he's a gigantic Titan watcher with power over ice and snow, and both dwarves and tauren (or at least Taunka) live in the Storm Peaks and could have had contact with him. Whether or not Hodir is the inspiration for Greatfather Winter, however, the figure has definitely changed over time. Tauren, for instance, don't particularly seem to care who Great-Father Winter was or is as much as they care about what is symbolized: " They focus almost entirely on the renewing aspects of the lore however, leaving legend worship to those races (as they view it) less in tune with the nature of things." The Feast of Winter Veil itself was inspired by the legend of Greatfather Winter giving to those whose lands he covered in cold a bounty to sustain them, which fits in well with the natural renewal theme of winter giving the land time to rest.
As fascinating as the possibility here of Hodir being incorporated into the traditions of the races of Azeroth is, and as interesting as the development of the myth, modern observances of Winter Veil have really very little to do with these ancient ideas. As Furmund in Orgrimmar and Goli Krumn in IF will tell you, Goblin entrepreneurs have siezed upon this basic story and exploded it in all directions like a gigantic, flaming comet made out of equal parts Burl Ives and Haddon Sundblom crashing into Azeroth, causing a cataclysm of holiday festivities. To the average modern Azerothian, Winter Veil is now about presents granted by a jolly man in a red outfit (which, if you consider the original feast ideal of Greatfather Winter bringing prosperity to those who accepted his visits, is an understandable development of the myth cycle). While the naysayers like Furmund and Goli can play the curmudgeon and protest the children losing touch the original meaning of Winter Veil, Smokywood Pastures (a subsidiary of the Steamwheedle Cartel) has a hit on its hands.
Of course, no enterprise can exist without complications, and Winter Veil is no different. When going about your Winter Veil celebration, you may well be called upon to rescue Metzen the Reindeer. The savages who kidnap this noble creature (and the exact location is of course a secret because if I tell you that's a spoiler and Greatfather Winter doesn't like boys and girls who spoil quests for people) don't even bother to keep him in a climate suitable for him! Monsters! Since Metzen is a prized member of Greatfather Winter's reindeer herd (and property of Smokywood Pastures) rescuing him is rewarding both financially and personally, I'm sure.
As awful as Metzen's fate is, it's hardly the only obstacle to Winter Veil. A shipment of Winter Veil treats disappears, and investigating the calamity leads the unwary into great peril, as the merciless Abominable Greench strikes! In addition to his menacing ways, he can also be darn hard to find. I would definitely recommend bringing some friends.
As we can see, for a holiday invented within World of Warcraft (it doesn't date back to the RTS) Winter Veil has taken on quite a life and quite the lore of its own. It's made its way into novels, it allows one to almost shoot one's eye out (indeed, there's a whole host of achievements involved), bosses drop hats and people turn their mounts into flying reindeers. Basically, here we have lore in the service of kicking back and having a good time. I can't imagine a better use.