Why is ethanol written as C2H5OH not C2H6O?
It is better to write $\ce{C_2H_6O}$ as $\ce{C_2H_5OH}$, because there is more than one compound with the same overall formula, and emphasising the hydroxyl group $\ce{-OH}$, which is what characterizes an alcohol makes it ethanol and nothing else.  So when you ask, "What is OH functional group doing here", it is exactly that the product is an alcohol, characterized by a hydroxyl group. And yes, alcohols are acidic in the right situations, given that their hydroxyl groups do produce acidic hydrogen ions, and yes, that is why it's so soluble in water.