Learn Spanish (Latin America): Las guirnaldas son lo que decora nuestra cuadra. - The garlands are what decorates our block.

Because the direct subject of that verb is lo que (meaning "that which" or "the thing that"). Even though it refers back to the plural Las guirnaldas, lo que is always treated as a grammatically singular, neuter entity.

How is this sentence different from saying Las guirnaldas son las que decoran nuestra cuadra?

Using las que translates to "the ones that" and makes the second verb plural (decoran) to agree with the feminine plural noun. Using lo que translates to "what" or "the thing that". Both are correct, but lo que focuses more abstractly on the role or the "what" rather than the specific items, which is exactly how this pseudo-cleft structure works.

If lo que is treated as singular, why do we use son instead of es?

The main verb ser must agree with the primary subject of the sentence. Here, the subject is Las guirnaldas, which is plural, so we need son. Interestingly, even if you reversed the sentence order, the verb would still be plural to match the garlands: Lo que decora nuestra cuadra son las guirnaldas.

I learned that cuadra means a horse stable. Why is it used here?