In phrases with a lot of modifiers before the head noun, does each word modify the rest of the phrase as it gets closer to the head noun. For example, in, "the cool Christmas house night party" would "cool" modify "Christmas house night party" and then "Christmas" would modify "house night party", etc. Is this correct or not?
Not all the modifiers in a phrase modify the head noun or noun phrase. An adjective may modify another adjective. Consider:
A large light weight dark blue beach towel.
An editor might argue that light-weight ought to be hyphenated, to make it more obvious to the reader; but this will depend on overall style for the document.
Clearly light modifies weight, and dark modifies blue. The determiner and the compound adjectives modify the noun phrase beach towel. But the words light and dark do not always modify other adjectives. So the context and meaning, as well as the order of the words, is important.
To me it seems like the "Christmas house" is a specific thing, so, assuming there is a "night party" at the Christmas house, it is that the Christmas house night party is "cool."
So night is an adjective modifying party. Night party. Christmas is an adjective modifying house. Christmas house. The noun phrase is Christmas house night party, where party is the head noun. One calls it cool, which gives us a cool Christmas house night party.
I think you are correct that the preceding words modify the head word, however be careful about predicates. Predicates modifying the word come after the word.