When drilling glass with diamonds, water has three uses.
It cools the glass. The action of grinding away the glass surface creates heat. If this is not dissapated, the glass will break from the heat differentials caused by the drilling.
Water helps to lubricate and clear the grinding dust from between the diamonds on the drill bit.
Water keeps the glass dust that would otherwise be circulated in the air contained and easy to clean. Ground glass does not cause silicosis. This is from a leading industrial safety expert:
"It is important to understand the difference between glass and crystalline silica because exposure outcomes are extremely different! Glass is a silicate containing various other ingredients which have been melted and upon cooling form an amorphous, or non-crystalline structure. While silica (SiO2) is a primary ingredient in the manufacturing of glass, when glass is formed under heat, the crystalline structure is changed to an amorphous structure and is no longer considered crystalline. Ground glass is rarely respirable because the particle is too big.
Always use wet methods when grinding glass! Water captures the dust."