Squirrels build a nest (or drey) out of twigs and branches inside the fork or hollow of a tree. They'll even use the attic of a house if it provides warmth and protection from predators, bad weather, and other squirrels looking for the same spot.
Like us, squirrels are very sensitive to the cold. They have a very small body surface area and lose heat more rapidly than larger animals. They rely on the auto-response of shivering to help maintain their core body temperature. They also eat plenty of fat to provide an extra layer of insulation.
Squirrels usually sleep in their nest or den during the day. At night, they'll curl up into a tight ball to conserve heat. They can be a little active during the day and may leave their nest on a mission to retrieve food from a buried cache or search for prey.
It is very important for squirrels to avoid getting soaked during rainstorms because the water interferes with their ability to regulate their body temperature. This can lead to hypothermia and death.
Unlike other wildlife, squirrels don't hibernate in the winter. Ground squirrels, however, do hibernate or estivate in the winter. They spend months in their underground burrows entering a deep sleep and lowering their metabolism to conserve energy. They eat a lot of food before hibernating to have enough reserves to last them through the long, dark winter. They emerge periodically to forage and eat their stored food to refuel before going back into hibernation.