Water acts as a damage modifier for both offense and defense on particular damage types.

Water is wet!

Oh yes it is! It was discovered several days into the game that by rolling in water, the character becomes soaked (and will leave wet foot prints).

This has an important in game effect of increasing Fire Defense by 300 points. This is useful when fighting the Smelter Demon or Jester Thomas as well as when getting several treasures on the hot lava rocks in Iron Keep.

Additionally, if you have a Torch lit and you get it underwater in any way, it will be put out.

Water is conductive

Your character and enemies will take additional lightning damage if they are wet or standing in a pool of water. Being soaked decreases Lightning Defense by 150 points.
Note that water only Lowers the resistance, it does not actually increase the damage you deal, meaning most you can deal is your base damage.

Water is clean

If you are covered in oil or poison, rolling in water will clean you off!

Water is dangerous!

In some areas, the water level is very deep. Trying to swim will result in death.

Water can slow down your character

Depending on the depth of the water your character is walking in you can be slowed down when running/sprinting or even have sprinting negated. This makes certain areas of the game very challenging due to the loss of mobility

Water for enemies

Water does NOT slow down enemies! Therefore be extra careful if you are in places like the Shrine of Amana or Doors of Pharros. Invading players (Blue or Red Phantoms) also can sprint through water!
But they do get the resistance increase/decrease coming from either standing or soaked in water.

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