What form of output are you using—interactive PDF, SWF, EPUB, Publish Online? What version of InDesign?
If you have the Creactive Suite, have a look at Edge. But as Steve states, it all depends on the output you want.
Launch Adobe Photoshop and create a new document of 240 x 400 pixels. Create some layers and name them this way: Trunk, Tree, Blue Lights. Later we will create Red Lights Layer and Yellow Lights Layer. For creating a layer go to Layer > New > Layer … (Ctrl+Shift+N).
Select the Custom Shape Tool (U) and then choose the triangle shape from the Custom Shape Picker. If you don’t see a triangle, use the drop down menu and select “All”.
Now draw a triangle which will represent the tree. When you draw the triangle set the foreground color to white. The line will be visible now, but for later I need another tree border. Leave some space to the bottom for the trunk like in the next image. Make sure to have the Tree layer selected.
On the layers window ( or go to Window > Paths ), click on the paths tab, then right click on the Work Path and choose Make Selection. Set feather radius 0 pixels. See the next image:
Hit the Edit in Quick Mask Mode button (Q). You now should have a pink background indicating that you are in this mode. Go to Filter > Brush Strokes > Sprayed Strokes and set here the stroke length and spray radius to 10; also set stroke direction to right diagonal. Hit the Q key to exit the quick mask mode. Set the foreground color green. Now select Edit > Fill > Foreground Color and click OK. Hit Ctrl+D to deselect. You should now have something like this:
Hit the Trunk layer and the Rectangular Marquee Tool (M) and draw a shape who will represent the trunk. Select a brown color for the foreground and go to Edit > Fill > Foreground Color and click OK like we did earlier.
Now we need to create some light balls. Make sure that the Blue Lights layer is now selected, grab the Elliptical Marquee Tool and draw a small circle. Select the foreground color blue and fill the circle like we did earlier. Hit Ctrl+D to deselect. I am going to add some effects to give the balls some depth. Select Layer > Layer Style > Blending Options. Here are the settings I used for Bevel and Emboss.
Having the Blue Lights layer selected, go to Layer > Duplicate Layer and name it Yellow Lights. Duplicate that layer too and name it Red Lights. Move the balls somewhere else on the tree. Open the Blending Options window again and set the Color Overlay area. Double click on the color tile, and choose a shade of yellow and then red.
Now go back to the three colored layer and duplicate them three-forth times. Click on each layer and move the lights around the tree. Now we need to merge all these layers into one to keep things as simple as possible. First hide all of the layers except the Blue Lights layers. Hit Ctrl and select the Blue Light Layers, right click and select Merge Visible. Now all of your blue lights should be on one layer. Repeat this with the Yellow Lights Layers and Red Lights Layers. Until now you should have obtained something like this:
Now we need a glow effect to have the blinking lights like I said from the beginning of this tutorial. Duplicate the blue lights layer, and name it Blue Bright. Select this new layer and open the Blending Options window. We are going to use the Outer Glow section this time. On the color tile, select a shade of blue, and use the settings shown below. Repeat this procedure for the yellow and red lights using proper colors.
Now that we have all the frames we will need the animation, we need to jump over to Image Ready. Hit the jump to Image Ready button on the Tools window.
If the animation window is not visible once you are in Image Ready go to Window > Animation. Now go to the layers palette, and turn off the layer Blue Bright, and Yellow Bright by clicking on the little eyeball on those layers. Leave all other layers on for now. You should see your first frame, and it should have the red lights looking bright.
Now duplicate this frame (hit the button to the bottom of the animation window) and hide the Red Bright Layer and Blue Bright Layer and let the Yellow Bright Layer visible. The duplicate again this frame and set visible the Blue Bright Layer. You should have 3 frames now, one with the red lights bright, one with the yellow lights bright, and one with the blue lights bright. Also set timing for every frame (Use the drop down menu and change the time) and the frequency:Forever.
Now you will need to save your animation. It will need to be saved as a GIF file. Make sure your your Optimize window is open. To do this, select Window > Optimize and choose 128 Dithered.
Now select File > Save Optimized As for saving. Choose your folder and a name for your file.
So there's the first part to your answer: You now have a great description of how to create your Christmas lights using an animated GIF.
The second part of your answer is where you can use it: Mike Rankin wrote a piece on InDesignSecrets.com about that:
It can be used directly in an EPUB file. He wrote this in 2014 and since then Publish Online became available in InDesign CC 2015. I think it would also show up there (but don't have time to test that this morning). And Mike also describes how to turn an animated GIF into an MP4 video in Photoshop.
The MP4 could be used in other formats like PDF or DPS.