Holey means full of holes. It is a perfectly good word, no matter what spell check says. Its more common homophone holy has several definitions: 1. sacred, or associated with a deity; 2. worthy of worship; 3. saintly; 4. deserving reverence.
Both words are old. Holy has roots in Old English and in the sources of Old English, and holey has been around at least since the 14th century (the earliest example listed in the Oxford English Dictionary is from 1398). Each was spelled several ways in early use, but the modern spellings were settled by the 19th century, and the words are not considered variants of each other.
There is a third homophone: wholly, meaning completely or in every way. But it is not commonly confused with the other words.
Combine the holey socks with scuffed-up shoes, and you’re in real trouble. [Letitia Baldrige’s New Manners for New Times]
Jerusalem came under rocket attack from Gaza for the first time today as Hamas militants targeted the holy city. [Mirror]
Refashion Co-Op’s Resweater shows us a great technique for machine-stitched monster-patches for your holey jeans. [Boing Boing]
The holy month is a magnet for sectarian attacks. [Independent Online]