In 1804, the New York Historical Society was founded with Nicholas as its patron saint, its members reviving the Dutch tradition of St. Nicholas as a gift-bringer. In 1809, Washington Irving published his satirical A History of New York, by one "Diedrich Knickerbocker," a work that poked fun at New York's Dutch past (St. Nicholas included). When Irving became a member of the Society the following year, the annual St. Nicholas Day dinner festivities included a woodcut of the traditional Nicholas figure. Irving revised his History of New York in 1812, adding details about Nicholas' "riding over the tops of the trees, in that selfsame waggon wherein he brings his yearly presents to children." In 1821, a New York printer named William Gilley issued a poem about a "Santeclaus" who dressed all in fur and drove a sleigh pulled by one reindeer.
On Christmas Eve of 1822, another New Yorker, Clement Clarke Moore, wrote down and read to his children a series of verses; his poem was published a year later as "An Account of a Visit from St. Nicholas" (more commonly known today by its opening line, "'Twas the night before Christmas . . .". Moore gave St. Nick eight reindeer (and named them all), and he devised the now-familiar entrance by chimney.
Meanwhile, in parts of Europe such as Germany, Nicholas the gift-giver had been superseded by a representation of the infant Jesus. The Christkindlein accompanied Nicholas-like figures with other names (such as "Père Nöel" in France), or he travelled with a dwarf-like helper. Belsnickle was represented by adults who dressed in furry disguises (including false whiskers), visited while children were still awake, and put on a scary performance. Gifts found by children the next morning were credited to Christkindlein, who had come while everyone was asleep. Over time, the non-visible Christkindlein (whose name mutated into "Kriss Kringle") was overshadowed by the visible Belsnickle, and both of them became confused with St. Nicholas and the emerging figure of Santa Claus.
In 1863, a caricaturist for Harper's Weekly named Thomas Nast began developing his own image of Santa. Nast gave his figure a "flowing set of whiskers" and dressed him "all in fur, from his head to his foot." Nast's 1866 montage entitled "Santa Claus and His Works" established Santa as a maker of toys; an 1869 book of the same name collected new Nast drawings with a poem by George P. Webster that identified the North Pole as Santa's home. Although Nast never settled on one size for his Santa figures (they ranged from elf-like to man-sized), his 1881 "Merry Old Santa Claus" drawing is quite close to the modern-day image.
The Santa Claus figure, although not yet standardized, was ubiquitous by the late 19th century. Santa was portrayed as both large and small; he was usually round but sometimes of normal or slight build; and he dressed in furs (like Belsnickle) or cloth suits of red, blue, green, or purple. A Boston printer named Louis Prang introduced the English custom of Christmas cards to America, and in 1885 he issued a card featuring a red-suited Santa. The Santa with a red suit began to replace the fur-dressed Belsnickle image and the multicolored Santas. Although Santa Claus was still wearing different colors of garb into the 20th century, the red suit had become a standard image by the 1920s, as described by The New York Times on 27 November 1927:
A standardized Santa Claus appears to New York children. Height, weight, stature are almost exactly standardized, as are the red garments, the hood and the white whiskers. The pack full of toys, ruddy cheeks and nose, bushy eyebrows and a jolly, paunchy effect are also inevitable parts of the requisite make-up.
Haddon H. Sundblom, a commercial illustrator, began to work for Coca-Cola in 1924, and from 1931 on he created at least one painting of Santa Claus every year for use in advertisments by The Coca-Cola Company. In the decades since that first Sundblom painting, the legend has grown that Sundblom single-handedly created the modern image of Santa Claus, and that he garbed his Santa in a white-trimmed red suit because red and white are the colors of Coca-Cola. Neither is true: as the quote above indicates, the ruddy, jolly Santa in a red suit was a standard before Sundblom drew his first Santa Claus for Coca-Cola. This isn't to say that Sundblom had nothing to do with the modern Santa Claus, however: the ubiquity and popularity of his paintings and Coca-Cola advertising helped cement the image of the tall, robust Santa Claus (like an "overweight superhero") in the public consciousness.
Information from this node was taken primarly from http://www.snopes.com/cokelore/santa.htm