I don't have the official definition yet - but this is what I gather from my unfortunately totally useless and lazy compliance department and what i remember from business school. Think of it as a sunday, with nothing working - definitely no trading of any kind (stocks, bonds, etc.), branches of banks being closed for the bank holiday, the usual sunday stuff. Not a hundred percent on that, but it can also include ATM's and credit card processing shut down as well.
That's the effect for you. Behind the scenes it means the risk officers of banks can calmly go through their exposures to accurately judge the amount of risk the bank is exposed too. They should know this anyways, but since many banks don't like spending money on risk mgt. ahead of time, things get counted wrong . The purpose of the bank holiday would be kind of like a waiting period on a gun - to insure that you don't pull the trigger without a clear head. With the markets being shutdown in theory one can prevent a stock market crash, or even a meltdown by preventing people to make rash decisions on rumours and actual news. Those decisions could range from dumping shares of companies on the market, freeze credit lines or a bank run which would bring down the banks.
Maybe someone has a official definition out there, not just my rambling from what I learned 10 years ago or gather from sitting on the trading floor at work.