I believe you are speaking about O-Bon, the Festival of the Dead, in the Japanese culture?
The main highlights are typically spending some time together as a family, visiting the grave site, burning incense and offering prayers and food, and on certain years determined by numerical significance in the Buddhist beliefs, handling the bone shards of ancestors using special chopsticks. The bone fragments are small due to the cremation process, and are passed from chopsticks to chopsticks, thus are not handled directly, but at a remove. A Buddhist priest typically oversees that portion of the ceremony.
As a side comment, due to the ceremonies of offering food to the dead and handling of bone fragments, this is why it is considered extremely rude to insert both chopsticks into a bowl of rice vertically (signifying that it is an offering to a dead person, which means no living person may eat from the food on that table) or passing food directly from chopsticks to chopsticks.