Because of its polarity and ability to form hydrogen bonds, water makes an excellent solvent, meaning that it can dissolve many different kinds of molecules. Most of the chemical reactions important to life take place in a watery environment inside of cells, and water’s capacity to dissolve a wide variety of molecules is key in allowing these chemical reactions to take place.
However, there are some substances (such as oils) that don’t dissolve well in water. Generally speaking, water is good at dissolving ions and polar molecules, but poor at dissolving nonpolar molecules.