That green stuff that you put in your radiator is ethylene glycol. The idea behind it is that it doesn’t boil or freeze easily. That is, it freezes significantly below zero degrees and boils at a substantially higher temperature than 100 degrees.
Also, the coolant contains antioxidants whose job is to stop your radiator and engine block corroding.
They are much more important in modern engines than they used to be, as modern engines are made from alloy and are therefore more prone to chemical attack. In older engines made of cast iron (old Holden engines) you could pretty much run tapwater in them and it wouldn’t make a whole lot of difference.
But modern engines need to be protected against corrosion, and so modern coolants with antioxidants are required.
But there’s something you have to watch out for. Coolants come with different concentrations of ethylene glycol – from about 5 or 10% up to 100%. It’s easy to think that more is better and just go for the 100% (usually called a concentrate) but there’s a problem with this.
The problem is that ethylene glycol has a lower heat capacity than water. So whereas it takes 1 calorie to heat 1 gram of water by 1 degree, it only takes 0.6 calorie to heat the EG by the same amount. And this is a problem when it is being used as a coolant of course, as it means that it gets hotter quicker, which is not what you want.
So go for a happy medium and run about 30% coolant – it’s do a better job of keeping your engine cool and will save you money.