Happy Guy Fawkes Day!

"Remember, remember, the fifth of November..." --C.K.

The reason it became a celebration was because the King survived the attempt on his life. In some ways I suppose it was an act of defiance against the people that attempted to blow him up. They don't do this part of it now, but it was also called Bonfire Night, people lit big bonfires and threw an effigy on them, it was referred to as 'the Guy' and was symbolic of Guy Fawkes himself.

The reason it became a celebration is that Guy Fawkes and his brethren were Catholics who wished to re-establish a Catholic monarchy in England after decades of Protestant rule under Elizabeth and then James and they intended to blow up Parliament when James gave an address there (not unlike the State of the Union speech every year in the US where the President, most of the Supreme Court and most of the Senate and the House are together in one place) and virtually all of the English government would be in attendance. The capture of Fawkes and the subsequent trial and execution of most of his compatriots gave cause for James to celebrate his survival and he ordered day (or night) of celebration where the people would have bonfires. Often the bonfires featured an effigy of the Pope, or, in some cases Guy Fawkes himself symbolically burned. The celebration wasn't to "honor" Guy Fawkes; it was to celebrate the failure of the Gunpowder Plot (the attempted assassination of the King) and to symbolically raise the middle digit to the Catholic Church and celebrate the ascension of Protestantism, at least for the time being. Of course that was not the end of Catholic-Protestant rivalry in England by any means and there's some conspiracy theories about the Gunpowder Plot as to whether the Government was behind it in the first place and that Fawkes and his crew were "set up" as fall guys. This centuries-old conflict about the establishment of a state religion (and subsequent conflicts) was the basis for the First Amendment of the US Constitution ("Congress shall make no law regarding establishment of religion, or prohibiting the free exercise thereof...).

http://www.historylearningsite.co.uk/stuart-england/the-gunpowder-plot-of-1605

The way I understood it was that Fawkes was rebelling against a lack of fair treatment and representation for Catholics. At the time I understand there were laws or policies in effect that seriously discriminated against Catholics in terms of property rights. In asking for better representation, as a minority no one took them seriously.....hence the plot. I also thought that Guy Fawkes day is viewed differently depending on whether one is Catholic or Protestant? Of course, this being a UK site, I'm sure others here would know more than us?

Fact is majority of UK citizens know of Guy Fawkes and his endeavour to blowup the Houses of Parliament but any greater insight is lacking, many are not even aware that he failed.

Significance of the event is definitely secondary, as it primarily is just a time for setting off fireworks, even bonfires are on the decline.

On issue of the religious divide, i have never experienced that fact regarding Guy Fawkes, but maybe someone with greater religious knowledge would have the answer.

Catholic vs Protestant is a difficult topic in the UK.

It starts getting complicated during the Tutor reign.
Henry VIII effectively started his own church and considered anyone still loyal to Rome a traitor. Before doing that he burnt protestants at the stake for heresy, and after doing that he didn't embrace most of the Protestant bits spreading across Europe. To put it in simple terms, Henry VIII basically had an English Catholic church rather than a Roman Catholic church.
Henry's son didn't live long enough to take full power, but during his reign/regency Protestant reform (and the burning of Catholics) came to England. So much so that on his death they tried to crown his cousin Lady Jane as Queen because if Henry's church was accepted then his eldest daughter Mary was illegitimate and Henry's second daughter was born to a confessed adulteress. Mary was of the opinion that her mother's marriage hadn't been dissolved because the Pope hadn't put his seal on it, and was strongly pro-Catholic. Needless to say, Jane was Protestant and could be counted on to be a loyal pawn to those who put her in power.

Jane's reign lasted nine days - which was as long as it took Bloody Queen Mary to march to London with her supporters (winning the odd battle on the way). Bloody Queen Mary was Catholic and burnt lots of Protestants at the stake (hence her name).
When Mary died, her younger sister Elizabeth I (who would have been illegitimate if Henry hadn't formed his own church) took the thrown and declared that England was Protestant - but if Catholics kept quiet she would ignore them and not burn them at the stake. This "no burning if you don't make a fuss over your religion" stand made her one of the more enlightened rulers in Europe, and set the stage for the Spanish Armada to attack English (that and the fact that the King of Spain believed that he should rule England because he had a proxy marriage to Mary).

After the burning stopped, well Catholics were still seen as being loyal to a foreign power (the Pope) which meant they couldn't be loyal to the King or Queen. The term "Papist" got used a lot. There were laws against Catholics holding certain offices in England, which became laws against them holding office in the UK, and of course there was the Catholic/Protestant bit in Ireland (which was part of the UK until the 1920s or 30s), and there is still a law barring the King or Queen from being Catholic.

If you look online there's a wonderful story that ends with someone proclaiming "I'm a protestant whore" to the cheers of a mob (a mob that was thinking about killing her for being the King's Catholic mistress) - I think the name Nell Gwyn is involved - and that's the sort of history that led to Guy trying to overthrow the British Government to get Catholics some basic rights.

It was in 1701 that the British Parliament passed the Act of Settlement to ensure a Protestant line of succession and oppose the claim of the Catholic, James Edward Stuart. The mother of George 1, Sophia was nominated heiress to the English throne if the reigning monarch William III and his heir Anne died without issue. George's mother was the closest Protestant relative, although there were probably about 50 Catholic relatives whose claims were stronger.

I believe the king or queen is nominally head of the Church of England, hence could not be Catholic. Is that correct?

One of the many official titles of the monarch, currently Elizabeth II, is "defender of the faith" (I think that's how it's phrased) which I believe refers to being head of the Church of England. I don't think you can even be a member of the Royal family (even by marriage) without being C of E, even today, can you?