The Red water is an important plot detail in the original Forbidden Siren. The red water appears in the atmosphere of Hanuda village when the Siren blares. It is symbolically the blood of Datatsushi, and is constructed with a crystalline structure that appears to replace the blood of living things. All the water in the village becomes red water, threatening all those who still remain human.
The water has massive regenerative properties, so much so that dead humans revive as Shibito. In terms of gameplay, whenever the player is injured, the red water falling as rain regenerates the player's health more quickly than normal wounds. Biologically speaking, the red water replaces lost blood, until eventually the crystalline liquid fully runs through a person's veins. Once this happens, the human is bound to Datatsushi's slave and becomes a Shibito.
In Siren Blood Curse, the red water is not known as such, and is only referenced as 'blood' that is falling from the sky as rain. It functions almost essentially the same as in Forbidden Siren, healing the player's health, except no reference is made to the rain's origin.