This observance commemorates Christ's baptism by John the Forerunner in the River Jordan, and the beginning of Christ's earthly ministry. The Feast of Theophany is the culmination of the Christmas Season, which starts on December 25 and ends on January 6. In mystic commemoration of this event, the Great Blessing of Water is performed on this day, and the holy water so blessed is used by the local priest to bless the homes of the faithful.
The feast is called Theophany because at the baptism of Christ the Holy Trinity appeared clearly to mankind for the first time -- the Father's voice is heard from Heaven, the Son of God is incarnate and standing physically in the Jordan, and the Holy Spirit descends on Him in the form of a dove.
This feast is also sometimes referred to as Epiphany by English-speaking Orthodox Christians, but that name more properly refers to the Western Christian feast falling on that same day and commemorating the visit of the Magi to the child Jesus.