I don’t know whether you are male or female however, the Algarve probably is the best place to be at Christmas especially if you reside in a country that is cold in winter, like me (Canada). There is no snow but swimming would be out of the question as the ocean would be way too cold. Mind you, if you are brave, I guess you could dip your toes. You can walk around in a light jacket though.
I would suggest that you pack:
jeans, or slacks. some sweatshirts , shirts, t-shirts, something to wear if it rains to keep dry. If you are packing for a female, I personally would pack the same as above but I would take along a warm skirt and jacket just for those special times. A good pair of walking shoes/runners and socks. I hope you have a terrific time and wish I were going also. Our family home is in the Algarve. Don’t forget to try the many wonderful sea food delights.