It's full of holes yet still holds water (6)

I believe the answer is:

sponge

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'water' is the definition.
(thesaurus)

I don't understand how the rest of the clue works.

(Other definitions for sponge that I've seen before include "Aquatic creature; cake" , "Freeload" , "Light cake; aquatic invertebrate" , "Aquatic invertebrate -- type of cake" , "Marine creature - cadge" .)

I've seen this clue in The Globe and Mail.

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