According to Wikipedia:
It is called the 'Water Festival' by Westerners because people pour water at one another as part of the cleansing ritual to welcome the new year. Traditionally people gently sprinkled water on one another as a sign of respect, but as the new year falls during the hottest month in South East Asia, many people end up dousing strangers and passersby in vehicles in boisterous celebration. The act of pouring water is also a show of blessings and good wishes. It is believed that on this Water Festival, everything old must be thrown away, or it will bring the owner bad luck.
The ceremony start with religious blessings.
The buddhist priests then sprinkle the boat and crew with water.
The crew rolls her down the steep banks and takes her on her first voyage on the Mekong River.
One of the French/Cambodian lady accompanying me at this ceremony was strongly asserting that she'd be out of the city during the Festival as "it gets so incredibly crowded it's a zoo here in Phnom Penh, and I want to be as far from the Festival as possible".
This was a eerily prescient comment as on November 22, 2010, according to the Guardian:
More then 300 people died in a stampede at a water festival in Phnom Penh tonight, according to Cambodia's prime minister.
Hundreds more were hurt at the event, on a small island in a river in the capital, as the crowd panicked and pushed over a bridge to the mainland. Some who tried to flee were crushed underfoot or fell into the water.
That's the end of my little exposé on Cambodia folks, but this really doesn't do it justice. It has a rich history, mainly influenced by buddhists art and philosophy and is a really nice country to visit, especially if it's your first time abroad as the people are kind and not at all pushy. But its recent history is also worth looking into, especially during the period of the Khmer Rouge (1975-1979) a period of communism where the intellectual elite (especially the French speaking Cambodians) where systematically murdered during a genocide.