All Souls Day is a holy day set aside for honoring the dead. The day is primarily celebrated in the Catholic Church, but it is also celebrated in the Eastern Orthodox Church and a few other denominations of Christianity. The Anglican church is the largest protestant church to celebrate the holy day. Most protestant denominations do not recognize the holiday and disagree with the theology behind it.
According to Catholic belief, the soul of a person who dies can go to one of three places. The first is heaven, where a person who dies in a state of perfect grace and communion with God goes. The second is hell, where those who die in a state of mortal sin are naturally condemned by their choice. The intermediate option is purgatory, which is thought to be where most people, free of mortal sin, but still in a state of lesser (venial) sin, must go.
Purgatory is necessary so that souls can be cleansed and perfected before they enter into heaven. There is scriptural basis for this belief. The primary reference is in 2 Maccabees, 12:26 and 12:32. "Turning to supplication, they prayed that the sinful deed might be fully blotted out... Thus made atonement for the dead that they might be free from sin."