In making of a homemade system there is high risk of damage you can do, so why do wont to make one and do you have the means to make one.
The system use water because water has a higher thermal conductivity than air - it can move heat faster than air can. Water also has a higher specific heat capacity. It can absorb more heat before it starts to feel hot. This is good because you can transport the heat somewhere far from the components.
The purpose of a watercooling setup is exactly the same as your central heating system, to collect heat from a heat source and tranport it to somewhere where it can dissipate that heat. It can do this more efficiently than an air cooler but it also has it's downsides e.g. disrupted airflow within the case, leaks.