Ricky (Eric Freeman) is the brother of the murderer in the first movie, and is in a psychiatric hospital following murders he has committed. He recounts his brother's murders to a psychologist using recycled footage from the first movie...
Then we see Ricky's own murder spree, killing people he thinks are "naughty". Ricky then escapes from hospital, kills a Santa and steals the outfit (thus making the film festive I guess)...
It doesn't sound very funny from the description but is executed so ridiculously you can't help but laugh. The budget was so low they needed to re-use so much old footage and the new footage is pretty ropey and badly acted. Random scenes and dialogue also add to the weirdness. A deserved cult classic, the film has become quite (in)famous for the following scene (which quite frankly is the best thing about the entire film):
