Placing a cake knife in water is done to help facilitate clean slicing and serving of the cake. The water functions as a lubricant, allowing the blade to glide through dense layers of frosting and moist cake without causing them to crumble or smudge. This technique is particularly useful when dealing with elaborate wedding cakes that require precise cuts to preserve their appearance. By dipping the knife into water before each slice, it allows for smoother and cleaner servings, ensuring that each piece of cake maintains its intended presentation before reaching guests' plates.