How do you get the hole inside?

Imagine a tray of ice cubes taken out too soon. What do you find? Crusts of ice with water inside. Release the water, and voilà, miniature ice lanterns. A natural cavity is created where the candle is placed and lit.

In other words, if you pop the balloon before all the water has a chance to freeze, and the unfrozen water is released, there will be a cavity of air where the candle or LED light is placed.