A friend, who happens to be a professor of religion and also a practicing minister, asked me the following wonderful questions about Hannukah, its practices and meaning:

Why are there SO MANY spellings of the word “Khanukah”?
Is the story of the “miracle of the oil” legend or in a Jewish text?
When did the Menorah come into Jewish worship practices? What does it mean? How is it used? When is it used? What does it represent?
I’m trying to learn more about your holiday, but it’s quite confusing…I’ve read in several sources and they all say different things. Why?

The answers I offered to her, I share with all of you in the hope that they help you find meaning in this wonderful holiday and share in the joy and wisdom that it offers to all of us.
Hannukah, Chanukah, etc. has many spellings due to competing systems of transliteration which transpose Hebrew (including the guttural sounds not present in English) into English spellings.
The story of the oil is BOTH legend AND in Jewish text. There is no historical evidence for the story of the miracle, let alone proof for it ever having happened. Though the same could be said for almost all miracle stories in the sacred texts of every faith I know.
The story first appears in the Babylonian Talmud (codified circa 500 c.e.) in a text tagged from the early second century, or some 350 years following the Hasmonean war of 165-162 b.c.e. For more information on the texts and the history of the events, I would suggest Shaye Cohen’s From The Maccabees To The Mishna and the Anchor Bible addition of both 1 and 2 Maccabees.
The menorah to which you refer is not, technically, a menorah at all but a hannukiah. The former was a seven-branched candelabrum originally used in the Tabernacle, later on in the Jerusalem Temple built by Solomon and first described in the Book of Exodus. The latter is a nine-branched candelabrum — eight slots correspond to the eight nights of the holiday, plus an “extra” spot for a candle that assured that no material benefit was had from the lights lit to commemorate the miracle of the small amount of oil which lasted eight days instead of one.
When it became a popularly accepted practice is hard to say.

The Talmud records a debate between sages who lived at the time of Jesus, about how to properly light the hannukiah. Based on that, one could argue that it was already in popular use at the time of those sages. Others would argue that we can only date the popular acceptance of the practice to the time of the text which records the debate — some centuries later. My guess is that it probably began at the earlier time and was broadly accepted by the later time, which is why the discussion about its proper use is preserved.
The use of the hannukiah is fairly straightforward. Each night of the holiday, after sunset, the candles/oil in the hannukiah are lit. We begin with one light on the first night and add one new candle on each successive evening, indicating the growth of the miracle.
The purposes for this practice are many, but the first reason recorded in ancient text is to publicize the fact that a miracle happened for the Jewish people long ago.
For Jews living under foreign domination, whether under the Romans or the Parthians, with limited resources and a variety of other spiritual, political, and communal challenges, it was a powerful affirmation of their sense that great things could still happen, that they were not cast out by God, and that they were still worthy of miracles, no matter how lousy life may have seemed to them.
Of course there are as many explanations for the meaning of this practice as there are people willing to offer an interpretation, which is one of the reasons that the practice has lasted as long as it has. But your comment that it is “all very confusing” is another matter.
Actually, Hannukah is pretty simple: at the coldest, darkest, deadest, and often most hopeless time of the year, the Jewish people celebrate that light, heat, warmth and life are still possible. We celebrate that even from the smallest containers, the greatest miracles are born. If all this sounds strikingly like the message of the Christmas tree or the story of a little baby born in a manger, all the better. It’s a message we all need and all deserve.