A libation is an offering to the gods. They are always liquid, usually wine, but can also be water, milk, oil, honey, or whatever you will be drinking (1). Before wine is drunk it is customary to offer the first “drink” to the gods by pouring a libation.
A libation to the heavenly gods (Olympians, etc.) is usually done by having the drink in a glass, bowl, or jug, and pouring a little out, in a controlled way, onto the fire, altar, or ground. This is called "spondé" (said spon-DAY) which is the Greek word for libation.
For the chthonic deities the cup or jug is placed directly on the ground and overturned, letting all the contents spill out. This is called khoé (said ko-AY). Such libations may also be made for the heroes and the dead. As an example, we read about Odysseus’ libation to the dead in which he first offers a honey drink, then wine, and lastly water (2).
The term spondé also has come to mean a peace treaty. Burkert in his Greek Religion explains that this usage is due to the order of events in ritual. The sacrifice is violent and bloody; in contrast, the libation marks the end of such actions, at it is bloodless and peaceful (3). Thus, the libation signals the end of violence, whether in ritual or in warfare. A libation also signals the end of the ritual.
Libations are not only for rituals; they can be made in the context of a prayer. It becomes the offering, replacing the sacrifice made in the larger celebrations. Since they are more simple than a full animal sacrifice, they were an especially popular form of home worship. Modern pagans who do not have access to the outside, or who wish to offer their libations at an inside altar or shrine, may pour directly into a collection bowl, or the sink, for example. In the case of using a bowl, after the offering the libation may be brought outside for disposal.