This tradition has its roots in the Middle Ages when superstitions (and the plague) ran rampant, many promising to cure a person of his ills or perhaps bring good fortune and love. Red represents passion, blood flowing through your bod and thus life itself. It's no wonder that most red-blooded, passionate Italians bring in the New Year by wearing red undies... but I wonder how many of them stick to the tradition of throwing away the undergarments just as the New Year commences. (How would one accomplish this?)
So, whether playing Tombola (Italian Bingo, read more HERE), dancing it up at a party, watching the fireworks in the Piazza or from your own balcony, don't forget the sausage, lentils and the red underwear!
Felice anno nuovo!