“Holy” means different things. The root meaning is “different” or “set apart.” In God’s case he is different from us by what he is by his very nature – self-existent, infinite, etc. This includes his moral goodness, and there is above all a sense of awesomeness and transcendence associated with the word “holy” that is unique to God. The angels tremble before him.
People are “holy” in a lesser way, by grace. The baptized are set apart (by God) from the unbaptized, in that they belong in a special way to God, partake of the divine nature, and are gradually conformed to God’s likeness (especially in his moral character). Holy men and women are set apart from the rest of us mediocre (or worse) believers because they are more conformed to God’s likeness. The saints in heaven and purgatory are set apart because they are confirmed in grace. The saints in heaven are particularly set apart because the enjoy the Beatific Vision. Canonized Saints are further set apart as personally identified and as examples to us all.