There are various versions of this legend:
In one, the monster comes down from the mountains of China on the 1st and 15th day of each lunar month, to hunt for food - crops, livestock and small human children - creating great fear among the villagers.
The village sage intuits that it is this fear of the monster that is the biggest problem. S/he convinces the villagers - instead of acting timid and frightful in the face of the beast - to play drums and gongs and set off fireworks. The people agree, and the next time the monster comes down for its feeding, the noise the villagers make causes it to stop in its tracks, turn and run away. Eventually it's overcome and killed by the people. The tradition of playing drums and gongs, and setting off fireworks is maintained, as a means of driving all (internal and external) monsters away.
In other versions of the story, the monster is pacified by food offerings left at the door, and/or frightened away by the color red. This gives birth to the tradition of including lots of red decorations, e.g. red lanterns and red envelops, as part of the New Year’s celebration.
“The legend behind the Southern Lion teaches us that many generations ago, a peculiar animal appeared in the Dong Guan province of China on the eve of Chinese New Year. Since the New Year is a time for celebration, the residents did not want to be troubled by this strange animal. At some point, they decided to construct facsimiles of the animal with which to chase it away. The heads were made by painting paper covered bamboo frames and the bodies by sewing triangles of cloth together. During the next New Year, two man teams together with drum, gong and cymbal players, roamed the province and scared what had been called the “nian shou” away, never to return. The legend has grown to mean that the performance of the Lion chases away evil spirits and welcomes good luck and good fortune.”
According to some versions of the legend, the monster is in the end neither killed nor simply chased away, but rather subdued and “converted” (to the Taoist path?) by Hongjun Laozu - the leader of the Taoist Immortals and teacher of the Three Purities. Hongjun Laozu – whose name means "The Great Primal Homogeneity" – then uses the (former) monster as his mount, i.e. rides it as one would a horse.