The tradition started as an activity related to feeding the poor, taking care of them, and giving them some gifts. However, any good deed done in the memory of those who have passed away, like giving charity, or donation in their name, is all called shraadh. The objective is to thank them, although they are not on this plane.
Ceremonies for the departed are followed world over. In Singapore, it is like a festival, a public holiday. Even in China, it is a very big affair.
In Singapore, the belief is, whatever you offer to the ancestors, the same is sent back in the form of blessings. So, whatever blessings people would want, they would make those things in paper, and burn them.
They believed that whatever you give away through fire, you will receive the same in the form of blessings here. E.g., if someone wants a car, or a fridge, they make a huge paper car or fridge, put it on the street, and burn it.
If they want a million dollars, they burn one million dollars of fake currency.
It is a wonder how mankind starts fooling himself or herself, and expects to receive blessings for real currency! Anyway, this has been the traditional practice.
In India, similar things happen. People pray to Bhagavati or Mother Divine, and offer a coconut. They say, ‘I will offer 21 coconuts, please let me marry the right person.’ As if Mother Divine is expecting 21 coconuts from you!
Innocent people do something to get something. It is called mannat (wish), it means you need to do something to get some favor.