The oldest report tells about a tree decorated with apples, wafers, nuts and gingerbread which has been erected [sic] by the guild of bakery servants in Freiburg i. B. [sic] in 1419. This simple decoration was often enhanced by paper flowers, sugar canes, cheese or sausage and could be raided by the [sic] children.
(Those folks should get a real translator...) While it might sound crazy to be dragging trees into your home, around 1400 a lot of the homes in Freiburg would have been more hut than house -- and would probably have had a fireplace in the middle somewhere with a simple hole in the roof to let the smoke out. People were dragging wood into their homes all the time, so a live tree to decorate would probably not have seemed that unusual at all.
It also turns out that, until the 20th century, a lot of Christmas trees were actually hung up from the ceiling. Queen Victoria, who was of German descent, used to hang them up herself.