Water

Water is a common resource that can be found all over any world at almost any place. It is less viscous than lava and travels much faster. As of patch 1.0.5, you can no longer hold Torches underwater (replaced with Glowsticks).

By default, players aren't able to swim in the water, only jump from the bottom. With the accessory item Flippers, the player can also jump from the body of water.

Mining Under Water
When mining in the underground, you will no doubt encounter water. This can be a massive nuisance but there are a few things you can do. If you need to get rid of it, you can get some Dirt Blocks or Stone Blocks or other Blocks and just place it over the body of water to block it up and allow access across it.

Another thing you can do is letting the water leak out, if that's available to you, by either digging on one edge or digging straight down. However, if you don't have a Mining Helmet or an Orb of Light this can be difficult. The best thing to do is check if you can get out, make sure no monsters are in the water, and go down there with a torch to see if there's a cave below. if not, just make your way out of the water and keep exploring, but if there is something down there or you want to dig down anyway simply dig one block into the wall and place a torch. Since 1.0.5, you can just use Glowsticks, they provide less light but you can toss them into water.

This can also come handy if you are digging down and are low on torches because Glowsticks fall down when the block under them is removed.

This way, you can get light and dig at the same time. Another way to get past the water problem is to dig a two-square wide tunnel down about five levels and then put two blocks of Dirt Blocks or similar resource to block it up, separating the water from the rest. After digging down a bit more, you can jump for air and easily place torches.