It works because people believe in it, as you may be hinting. This goes to the true nature of reality and why we have experiences in the first place.

People have varying levels of sensitivities to spirits, and probably certain locations have elements that amplify various energy frequencies, which may increase the intensity of those experiences. But think of it this way: people who move into an apartment that turns out to be under an airport's landing pattern are quite disconcerted at first. But after awhile they just tune it out and for them, it's not even there anymore. This is a very natural process.

In the same manner, people dealing with disconcerting experiences of a psychic nature may use rituals which, if they believe in them, allow their minds to tune-out energy frequencies so they are no longer bothered by them. And as you suggest, sage, holy water, blessings by a pagan priest or a Rabbi or a Muslim cleric or a medium are all equally effective, dependent entirely on the expectations of those involved.

Now we are getting to the nature of mind and reality itself, and your own intuitions are excellent. If you can accept the ideas of quantum mechanics, that all things in the physical universe arise from the quantum universe, and that quantum universe has theoretical infinite energy potential, and that everything is, at its source really only one thing - then all you need to do is find the interface between that quantum universe and this physical one. I believe that interface is the mind, and there is both experiential and scientific support for that belief. And this opens the door to everything....

Now I don't want to leave this post without addressing your remarks about God. :) If I had to choose between atheists and religious fundamentalists, I'd definitely hang out with the atheists. Reason beats superstition, imo. But I'd also consider myself to be a former preachy atheist, changed only somewhat by experiences. So I have some thoughts I'd like to share on that subject.

For me, "God" is a poisoned word, having been appropriated and used as a weapon by the primitive fear-based religions of the Judeo-Christian-Islamic lineage. And we could leave it at that. I wish to add, however, that this understanding that everything is really one thing, as we have learned from relativity and quantum mechanics, suggests that there is a Source and Essence of All That Is. No need to use the G word, but meditation on what that one thing might be, and connecting your awareness to that one thing ... well, that could be helpful. :)