Every year I knit hats for homeless kids in my area. It is such an enjoyable and fulfilling project--the group that coordinates the effort hosts a big meal during the holidays and wraps each hat donated so each person gets a hat. There are a lot of families that attend, some with babies and very small children. For most of these kids, it is all they will get for Christmas.
I have been doing this for a couple of years now, and this year I got a head start on my yearly projects. I use this pattern (on Ravelry):
Triple Threat Toddler Hat Pattern
Love this pattern because it used three strands of yarn, yielding a super thick and warm hat. Also, it's fun to get creative with the color combinations. Throughout the year, I'll save yarn leftover from other projects and buy yarn on sale/clearance and keep it in a bin. When it is time to start on my annual project, I have a huge arsenal of charity yarn!
I then put a tag on each one and use festive holiday yarn to decorate. I got 12 done so far this year (got 24 done last year), but plan to make some more before the holidays roll around again. Love doing this!