The Holy Water it's like a shield, it reduces the damage taken by the enemies. The medals are lives, every time you restart the level you start with five, it's true, but that's the idea :) Buy the medals/lives when you lose some by getting hit by the monsters. The second level, the idea is to get the Holy Water and be quik. The blue ghosts have a limited number of spawning and they die with one hit. You need to kill the big Ghost to pass the level, but first I recommend to kill the blue ghosts and after focus on the big guy and the other minions (he doesn't shoot). Thanks a lot for your comment! I'm glad you like it! Try again and if not I'll have a look and maybe reduce the difficulty a little bit of that level.
So I played using your advice and was able to beat the big reaper. The only thing is that after I killed him, I continued walking until I went right off the edge of the level. I tried to pause so I could screen grab and realized the position of the pause is underneath the Itch.io UI so I couldn't pause! Maybe consider making your game window smaller. I use 980x635. Hope this helps, I'd like to see more of the game after level 2!