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This sweet short story is about how a young couple loves each other so much that they are willing to part with their most treasured possessions in order to purchase a meaningful gift for the other person.
Della, the wife of Jim, has really beautiful hair, that she treasures above all else. O. Henry describes it as
"rippling and shining like a cascade of brown waters. It reached below her knee and made itself almost a garment for her."
Well, Della, because she doesn't have any money, decides to cut it off and sell it, in order to get enough money for a chain for Jim's watch. And, speaking of Jim's watch, that is their other prized possession. Jim loved the gold watch "that had been his father's and his grandfather's." He loved that watch, and because he did, Della wanted to get him a chain to put it on, so that he can proudly wear and use it. Unfortunately, he sells the watch to buy her hair combs for her hair. So, they sell their most prized possessions to supplement the other's pride possession. It's an unfortunate twist, but doesn't reduce the sweetness of their love for each other, that they were willing to part with their most prized material possessions in order to make the other one happy.
I hope that helps a bit; good luck!
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