I told her, helpfully, that holy water is water that has been blessed by a priest. She asked what does it do? I said holy water is what's known as a sacramental, and that I wasn't entirely clear on what exactly sacramentals do, but that I thought they were supposed to have some symbolic/reminderly value. Anyway, since no one should have to go off of my vague notions and semi-educated guesses, I told Jeanette that I would do some research about sacramentals, and holy water specifically. So here are the fruits of my research.
The Catechism of the Catholic Church has a section on sacramentals which starts off thusly:
"Holy Mother Church has, moreover, instituted sacramentals. These are sacred signs which bear a resemblance to the sacraments. They signify effects, particularly of a spiritual nature, which are obtained through the intercession of the Church. By them men are disposed to receive the chief effect of the sacraments, and various occasions in life are rendered holy." (CCC 1667, quoting Sacrosanctum concilium)
I didn't quite understand all that, so I kept reading to try to find out exactly what sacramentals are and what they do:
"They always include a prayer, often accompanied by a specific sign, such as the laying on of hands, the sign of the cross, or the sprinkling of holy water (which recalls Baptism)." (CCC 1668)
"Sacramentals do not confer the grace of the Holy Spirit in the way that the sacraments do, but by the Church's prayer, they prepare us to receive grace and dispose us to cooperate with it. 'For well-disposed members of the faithful, the liturgy of the sacraments and sacramentals sanctifies almost every event of their lives with the divine grace which flows from the Paschal mystery of the Passion, Death, and Resurrection of Christ. From this source all sacraments and sacramentals draw their power. There is scarcely any proper use of material things which cannot be thus directed toward the sanctification of men and the praise of God.'" (CCC 1670, quoting Sacrosanctum concilium)
So, broadly speaking, it sounds like pretty much any material thing can be a sacramental, as long as it helps us to receive God's grace and cooperate with it. But apparently not all sacramentals are material:
"Among sacramentals blessings (of persons, meals, objects, and places) come first. Every blessing praises God and prays for his gifts. In Christ, Christians are blessed by God the Father 'with every spiritual blessing.' This is why the Church imparts blessings by invoking the name of Jesus, usually while making the holy sign of the cross of Christ." (CCC 1671, quoting Ephesians 1:3)
Exorcism is also covered in the section on sacramentals, but now we're a long way from where we started, I think. Here's what the Catechism says "in brief" about sacramentals, and then we'll get back to holy water:
"Sacramentals are sacred signs instituted by the Church. They prepare men to receive the fruit of the sacraments and sanctify different circumstances of life." (CCC 1677)
Jimmy Akin, a great Catholic apologist, gives this explanation of sacramentals on his blog:
"Like the other sacramentals, holy water thus serves as a means by which we can to something to signify our desire to consecrate ourselves and our circumstances to God, striking a connection with him in response to his grace and asking him to give us of his grace. They are, if you will, a kind of acted out prayer in which we and the Church implore God's blessings."
So, holy water. As I said, holy water is water that has been blessed by a priest, and it is a sacramental. And the bowl that it is kept in is properly called a font. Holy water is used for baptism (which is itself a sacrament, not to be confused with a sacramental) and, as I said, for making the sign of the cross as one enters a church. Dipping your fingers in holy water and making the sign of the cross is intended to be a reminder of baptism. A priest will also sometimes sprinkle holy water over the congregation at the beginning of Mass. You can even put some holy water from church in a bottle and take it home with you.
Anyway, to close, here is the rite of blessing said by the priest at a baptism to make water into holy water. I think it's wonderful.
"Father, You give us grace through sacramental signs, which tell us of the wonders of Your unseen power.
"In baptism we use Your gift of water, which You have made a rich symbol of the grace You give us in this sacrament.
"At the very dawn of creation, Your Spirit breathed on the waters, making them the wellspring of all holiness.
"The waters of the great flood You made a sign of the waters of baptism, that make an end of sin and a new beginning of goodness.
"Through the waters of the Red Sea, You led Israel out of slavery, to be an image of God's holy people, set free from sin by baptism.
"In the waters of the Jordan, Your Son was baptized by John and anointed with the Spirit.
"Your Son willed that water and blood should flow from His side as He hung upon the cross.
"After His resurrection, He told His disciples: 'Go out and teach all nations, baptizing them in the name of the Father and of the Son and of the Holy Spirit.'
"Father, look now with love upon Your Church, and unseal for her the fountain of baptism.
"By the power of the Spirit give to the water of this font the grace of your Son.
"You created man in Your own likeness: cleanse him from sin in a new birth of innocence by water and the Spirit.
"We ask You, Father, with Your Son to send the Holy Spirit upon the waters of this font.
"May all who are buried with Christ in the death of baptism rise also with Him to newness of life. We ask this through Christ our Lord. Amen."