In buddhism the decease will reincarnate and burning paper money is a way to wish him wealth in his next life.
This custom has evolved.
As you can see now many Chinese people not only burn paper money but a LV paper bag, a paper sport car, a paper big house...
As a foreigner I can not understand this custom.
On one side it shows that you care.
But it also shows that most Chinese people orient their life toward money! For them being happy= being wealthy. Happiness in the next life means having LV bag, a porsche, a villa... and it is a ancestral custom!