From here, the ship's artificially-intelligent computer Holly was generated, controlled and projected from and to around the ship. It was a relatively small, greasy, blackened room, completely cluttered with exposed wiring, server towers and databanks. It was located close to the Science Room and the Officer's Quarters.
After the radiation leak which killed all but one of the crew who was in stasis at the time, Holly was left alone for three million years, severely degrading Holly's intelligence and mental state, with an I.Q. dropping from 6000 to that of a babbling imbecile. (Pilot episode) However, the computer senility of Holly may not have been caused only by his/her lengthy solitude; the Holly Room itself was also severely deteriorated.
"Intelligence compression" experiment
When the ship passed through an Ion Storm, Holly was degraded even further, and Kryten came up with a plan to restore Holly's I.Q. to 6,000 through "intelligence compression", channeling it through a single CPU, although it would greatly reduce Holly's lifespan. Kryten retrieved the remains of the annoying Talkie Toaster from the Waste Disposal, after Lister had smashed it up, and practiced the "intelligence compression" experiment on Talkie Toaster.
It worked, so the gang decided to try the intelligence compression process on Holly, going down to the Holly Room and excitedly working on Holly's data-banks and wiring, imagining what benefits a brilliant Holly could bring them.
The plan worked, restoring Holly to an I.Q. of 6,000, but at the cost of reducing her lifespan to minutes and forcing Holly to shut herself down to preserve what little time she had left. This left Red Dwarf adrift without power. However, this timeline was altered when Lister played "pool with planets", and blocked up the white hole which had been spewing time into the Universe. In the "new" timeline, the chamber, and Holly, went unaltered. ("White Hole", Series IV)
When Red Dwarf was rebuilt and upgraded by the nanobots, a new and rebuilt Holly with an I.Q. of 6,000 again ran the ship. The original, senile version of Holly was still stored in Lister's wristwatch, and was outsmarted by the genius rebuilt Holly, and joined the regular characters as they were locked up in the ship's brig. ("Back in the Red", Series VIII)
The Rebuilt Holly either evacuated along with most of the crew in the Series VIII finale, or was destroyed by the effects of the Chameleonic Microbe, but this is not made clear. The old, senile Holly Watch was not seen again either, so was either destroyed by the Chameleonic Microbe, or left in the Mirror Universe. ("Only the Good...", Series VIII)
Back to Earth
In Back to Earth and Series X, neither version of Holly is present, with the main computer still off-line. and the ship being run by the silent and apparently non-sentient back-up, the JMC On-Board Computer. In Back to Earth, Rimmer mentions to Katerina Bartokovsky that the computer is off-line due to water damage in Holly's databanks. Rimmer suggests that this is because Lister left a bath running for nine years, although since this explanation would seem unlikely it is likely Rimmer is talking in hyperbole, or also as likely blaming Lister for one of his own many mistakes instead of admitting responsibility. More likely explanations are the aforementioned Chameleonic Microbe, or damage done by the Despair Squid then inhabiting the ship's main Water Tank.
Rimmer says to Bartokovsky that Lister left a bath running in the Officer's Quarters accidentally for nine years, which continually shipped in water from the Water Tank. The Holly Room was close-by, or underneath, the Officer's Quarters, and one day - early one Tuesday morning - the deck gave way and two million gallons of water fell through the ship, Rimmer and Holly's databanks - not a nice way to be woken up. Rimmer was washed down the corridor out of bed at 80 knots per hour. Rimmer tells Bartokovsky that he has the skutters attempting to dry out the Holly Room, a task which has taken some time and is still not finished, and Bartokovsky asks Rimmer if there is more pressing tasks the skutters could be getting on with, such as propagating the human species or getting the ship back to Earth.
Rimmer says that he misses Holly's level of cock-ups. The gang do manage to upload a new and supposedly more efficient computer named Pree which they had recently acquired. Pree quickly turns homicidal, and the gang try to get through to the Machine Room to disable her manually, but the gang find that they cannot gain access as they are gassed with laughing has. However, as the gang were about to be crushed by some Garbage Droids under Pree's control, Lister was successful in convincing Pree to voluntarily uninstall herself. ("Fathers & Suns", Series X)