The rotating ring is used to control the degree of polarising you want for your pictures..
Not only you can use the filter to remove reflection on water, you can also use it to deepen the blue of the sky, bring out the clouds, and enrich the colours of your pictures. Grass will appear more green, annoying reflections removed from glass, etc.
Note that you cannot remove reflections from mirrors..
i think what happens when you rotate is that you are changing the polarising angle of lights (vibgyor) - hence you are able to
a. cut off reflections
b. make a scene brighter or darker (cutting off different colours)