Well, it's all supposed to be in honor of Saint Isidore the Laborer or San Isidro el Labrador. Saint Isidore (born in 1070, died on 15 May 1130) was a native of Madrid who became the patron saint of the peasants and laborers. According to legend, he was a poor peasant farmer, who along with his wife Maria (also a saint - Santa María de la Cabeza), was so generous that they shared the little they had with others. Today Saint Isidore is the patron saint of Madrid, as well as of other locations in Spain and around the world.
Although the 15th is the official holiday, in Madrid the partying starts the Friday before that date and lasts until the the following Sunday when cookouts serving traditional Madrid stew (cocido Madrileño) are held around the region. While most events take place in or near downtown Madrid, all of the Autonomous Region known as The Community of Madrid ("Communidad de Madrid") observes the holiday. So, suburbs, neighboring towns and even small villages have their own special events.
Back in the city, probably one of the most traditional parts of the of the observance is the pilgrimage to the hermitage erected in the saint's honor in Saint Isidore's Meadow (La pradera de San Isidro) on the banks of the Río Manzanares River. In Plaza de las Vistillas the saint's statue is paraded around while Madrileños wear traditional costumes, enjoy picnics and drink from the plaza's fountain. At night concerts are held there. Plaza Mayor in the city center probably sees the most action, with nightly concerts and one of the biggest cocido cookouts. Another big event is the series of bullfights held at Madrid's iconic Las Ventas bullring. Of course there are many other events all week long: parades, exhibitions, street fairs, and a wide variety of musical performances -- from opera to flamenco pop to Hip-Hop; from local bands to international stars.
Although only an official holiday in Madrid sine 1947, a picture Goya painted in 1778, La pradera de San Isidro, attests to the importance of this event in the city's past.
Places outside the Community of Madrid that have events honoring San Isidro as their Patron Saint include:
Yecla, Murcia Province
Castalla, Alicante Province
Dueñas, Palencia Province
Medina de Pomar, Burgos Province
Alameda, Estepona and Nerja, Málaga Province
Bujalance and Cañete de las Torres, Córdoba Province
Alcadozo, Cenizate and Zulema, Albacete Province
Paterna del Campo, Huelva Province
Cañada Juncosa, Cuenca Province
Santa María del Páramo, León Province
Huétor-Tájar , Granada Province
La Lastrilla, Segovia Province
Torreorgaz, Cáceres Province
and, of course, in the town of San Isidro, Almería Province.