Water displacement is a particular case of fluid displacement, which is simply the principle that any object placed in a fluid causes that fluid to no longer occupy that volume of space. The fluid must go somewhere, however, and so with liquids in containers, this causes their overall height to rise. Gases are also fluids subject to displacement, and they both fill space and are compressible, so an object introduced to a sealed container full of a gas simply decreases the volume of the gas and increases its pressure.
Fluid displacement in general and water displacement in particular have many important effects. One of these is buoyancy, the reason why objects like corks or boats float in water. When an object displaces water, it is competing with the water for a lower position, since both the object and the water are subject to gravity. If the overall density of the object is greater than water, it sinks. Otherwise, it floats, displacing only as much water as is equivalent to its own weight. Even an object sinking in water undergoes gravitational acceleration as if it weighed only as much as the difference between its own weight and the weight of water it displaces. Combined with the friction from water, this makes many objects sink quite slowly in water.