Terraria – Is it a bad idea to have a water candle in the house

That, my friend, is how you create obsidian.

You can find a very useful guide on farming obsidian here.

According to Terraria's official wiki page on Water Candles:

Holding a Water Candle in your hand will increase the monster spawn probability to 133% and the maximum number of monsters to 150%.

They produce light like a regular torch or candle would. If you have them on tables as props, they produce some lovely spooky lighting. However, they don't increase the spawn rate like this.

To increase the spawn rate with a water candle, hold it in your hand. It can't just be in the top row of your inventory - it must be the currently active and held item.

Keep a weapon handy so that you can swap back and forth between your water candle and weapon as necessary. You can't hold both at the same time, but you can at least run around luring enemies out with your water candle, attack them all, then return to luring enemies out.