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Usually people wear fancy or party clothes to celebrate New Year's, like a suit, a nice dress or something more dressed up than usual. Many go for black or gold clothes for the occasion, though honestly it depends on the type of event you're going to. If it's a party at a friend's place it can be more relaxed, but if it's somewhere fancy people put on their best outfits.
I personally always dress up a bit nicer for New Year's, like with a good pair of pants and a shirt, nothing over the top but something that shows you made an effort.
The truth is it really depends on what your plans are that day, because if it's a party at someone's place or at a bar, obviously you dress more formal, but if it's more relaxed with family at home, you can go more comfortable.
Either way, most people look for something that's not their everyday clothes, something that makes you feel special to say goodbye to the year.
It really depends on where you're going to spend the night, honestly. If it's a party at someone's place or indoors, I go for something that looks presentable but comfortable - dark pants, a nice blouse, nothing that keeps me from moving around freely. Now, when I celebrate outside (like camping with friends because we love spending New Year's in nature), it's a completely different story: warm clothes, layers, because after midnight the cold is brutal and there's nothing worse than shivering while everyone's having fun. The important thing is that you feel comfortable, because if you spend the night uncomfortable you're not going to enjoy anything.
Do you really think something has to be uncomfortable just because it's elegant? I think that's the mistake a lot of people make.
New Year's clothes should definitely be nice, but if you're uncomfortable all night it's not worth it. I'd rather wear something that makes me feel confident and good about myself: pants that fit right, a blouse or jacket I like, shoes I can actually stand in without suffering. It doesn't need to be a formal gown or a suit if that's not your style. You've got enough to deal with on December 31st without adjusting your clothes every five minutes.
What really works is having one piece with a special touch, something you wouldn't normally wear on a regular Monday. When I'm baking in the kitchen I wear an apron, so on New Year's it's the opposite: that thing you keep in your closet but never get around to wearing. Maybe some sparkly earrings, a sequined blouse, a standout belt. That gives you that "I made an effort" vibe without having to look like you're in costume, and honestly, people notice that way more than whether you're wearing a whole designer dress.
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