Hello Michael.  First, I must say that there is no such thing as
a dumb question!  One cannot expect everyone to know everything!  ";-)

In answer to your question, yes, you do use water between the heater
and glue pot, just as you would do in a double boiler.  Just be sure
the liner has no holes, which could cause an electrical hazard.

Is your 'Hold Heet' one of the older ones with the copper liner,
or one of the newer ones with aluminum (or is it stainless steel)?
I have one of each, and they work equally well, but I think the copper
one would last longer and could be repaired if necessary.

Regards,
Bob Loesch
http://home.jps.net/~rrloesch/index.htm