Definition of Allusion
When describing the two possessions in which the Youngs take pride—Jim's watch and Della's hair—the narrator makes an allusion to two figures from the Bible, the Queen of Sheba and King Solomon, which is also an instance of hyperbole:
"Had the Queen of Sheba lived in the flat across the airshaft, Della would have let her hair hang out the window some day to dry just to depreciate Her Majesty's jewels and gifts. Had King Solomon been the janitor, with all his treasures piled up in the basement, Jim would have pulled out his watch every time he passed, just to see him pluck at his beard from envy."
After Jim discovers that Della has cut her hair, she explains that she cut it for his sake, making an allusion to Jesus's words in the Bible that "the hairs of your head are all numbered":
Unlock with LitCharts A+"Maybe the hairs of my head were numbered," she went on with a sudden serious sweetness, "but nobody could ever count my love for you."
At the end of the story, after Jim and Della have exchanged their useless gifts and realized the sacrifices they've made for each other, the story uses an allusion to the biblical "magi" to explain the nature of true generosity.
Unlock with LitCharts A+The magi, as you know, were wise men—wonderfully wise men—who brought gifts to the Babe in the manger. They invented the art of giving Christmas presents. Being wise, their gifts were no doubt wise ones [...]. And here I have lamely related to you the uneventful chronicle of two foolish children in a flat who most unwisely sacrificed for each other the greatest treasures of their house. But in a last word to the wise of these days let it be said that of all who give gifts these two were the wisest. [...] They are the magi.