The sleigh is controlled with the direction arrows, and you have to press the spacebar to drop the presents (you can also use the mouse). Remember that X marks the spot where you should aim. You also have to avoid the planes in the air, as if you hit them you'll lose lives.
To beat the level you have to keep a 70% accuracy rate, otherwise the game is automatically over. Each level adds a greater number of houses, making the game more difficult as you advance.