The Holy Hand Grenade is an explosive that creates a massive tile-destroying explosion. When it explodes, it plays a "Hallelujah!" sound.
Then did he raise on high the Holy Hand Grenade of Antioch, saying, "Bless this, O Lord, that with it thou mayst blow thine enemies to tiny bits, in thy mercy." And the people did rejoice and did feast upon the lambs and toads and tree-sloths and fruit-bats and orangutans and breakfast cereals ... Now did the Lord say, "First thou pullest the Holy Pin. Then thou must count to three. Three shall be the number of the counting and the number of the counting shall be three. Four shalt thou not count, neither shalt thou count two, excepting that thou then proceedeth to three. Five is right out. Once the number three, being the number of the counting, be reached, then lobbest thou the Holy Hand Grenade in the direction of thine foe, who, being naughty in my sight, shall snuff it."
It is a definite reference to the 1975 film, "Monty Python and the Holy Grail", where Saint Attila requested God to bless a grenade, becoming the "Holy Hand Grenade of Antioch".
It's currently the item with highest base damage in Terraria. However, it is only available on the Mobile and 3DS versions.