While the Dursleys claimed it was a birthday present (his birthday is in July), it was actually meant to be his Christmas present. The Dursleys never actually gave Harry anything for Christmas, and their "present" was just a way to avoid further embarrassment.
The parcel contained a hand-knitted wool scarf, a pair of mittens, and a thick, hand-knitted sweater. While the gifts were likely well-intentioned, they were also a bit unfortunate for Harry, as he was in desperate need of new clothes and the sweaters were way too big for him.