Basically, everyone who wants to participates brings a tacky/ugly/gag gift. Then you open them playing "Dirty Santa". (Draw numbers for gift selection order. Person one opens gift. Person two can steal person one's gift, or opens another. If gift one is stolen, person one opens again. Person three can steal either gift or open a new one. Continue until all gifts have been opened.)
Our family had a travelling Big-mouth Billy Bass. He wears a santa hat and sings Christmas carols. He's a yearly staple at our exchange. It's really pretty amusing to see what kind of junk everyone comes up with! Free bobble-head doll from a major leagus baseball game, yes, I think it's the perfect gift!