According to the Catholic Encyclopedia, holy water is water that has been blessed by a priest. The process of blessing the water is called the Blessing of Water.
The Rituale Romanum, which is the official book that contains the rites and ceremonies of the Catholic Church, outlines the specific prayers and actions that are to be taken in order to bless water. The Rituale Romanum says that holy water can be made by anyone who has been ordained a deacon or a priest.
First, salt is put into the water. Then, the person blessing the water says a prayer asking God to sanctify the element. Next, Holy Scriptures are read aloud over the water. Finally, more prayers are said and then the Sign of the Cross is made over the vessel containing the holy water.