The reed is used during the Legends' Quest, where it must be used on the pure water spring in the Kharazi Jungle to obtain a golden bowl filled with pure water.
Hollow reeds can still be obtained after completing the quest, despite them having no real purpose. It can still be used to siphon the water into the golden bowl.
Trivia
The hollow reed was once a tradeable item upon release, but was made untradeable later on as it was used in scams where the scammer would sell it for exorbitant amounts of money to unsuspecting players, claiming that it was a very rare discontinued item.