The festival of al-Hijra, celebrated on the first of the Muslim month of Muharram, commemorates the hijra or migration of the prophet Muhammad and many of his followers from Makkah to Madinah in 622 CE. When the second Muslim caliph, Umar, came to institute an Islamic calendar, he and his advisers decided that the migration was the most appropriate reference point for the beginning of the Islamic epoch. This then became the first day of the first month of the first year; Muslim years are dated from this time and are termed AH for ‘after the hijra’.
In Sunni Muslim countries the first of Muharram is often celebrated as the New Year, while for the Shi’a community it begins a mourning period which ends on the tenth day of the month, observed as the festival of Ashura.
More information can be found in the feature article Trouble in the beginning.