The Aurora, or Northern Lights, are caused by electric currents flowing in our upper atmosphere. The energy from the currents excites atoms and molecules in the sky, which then emit photons (colored light) as they decay down to their previous lower energy levels.
What causes the electric currents to flow?
Well, there is a complex relationship between the plasma (charged, gaseous particles) surrounding our planet, our Earth's magnetic field, and the energy in various forms coming off the sun. Earth has its own dipole magnetic field, which surrounds the planet in space (extending 10's of Earth radii beyond the planet, called the magnetosphere). The sun also has its own magnetic field. It not only sends electromagnetic radiation our way (light, UV, etc), but there is also a solar wind which constantly blows off the sun. This wind consists of (very sparsely populated) charged particles, mainly protons and electrons. The solar wind, since it is made up of charged particles, carries the sun's magnetic field outward into the solar system. This magnetic field extended from the sun is called the Interplanetary Magnetic Field (IMF). When the IMF and Earth's magnetic field line up just right, they actually cancel each other out, causing a large "hole" in Earth's "magnetic force field." This hole allows the solar wind to blow toward the Earth, until Earth's fields deflect the charged particles, positive and negative charges going in opposite directions. This creates a potential (a voltage) across the Earth, which then drives an electric "field-aligned current" that connects the magnetosphere's boundary to the ionosphere. The current is called field-aligned because the charged particles are confined to travel along the magnetic field lines. These currents inject enormous amounts of power into the atmosphere. The entire process is called "magnetohydrodynamic power generation," because the motion of the particles can be modeled as if they were a fluid.