Sbear,

The main purpose is to cook the water out so that your casserole will not become soggy/watery as it cooks. I ususally cook until just tender (I like a bit more "crunch"... but you could cook until well done, if you like). I have tried this in the microwave but for some reason the microwave doesn't seem to render as much water from the squash and onion and every time I have steamed the squash/onion in the microwave, my casserole has been too watery. (You may have better luck with the microwave.) If you add too much water, the squash/onion becomes water logged and it's almost impossible to get all the water out. However, you need a tiny bit of water to get the cooking process started so the squash won't burn. I usually just cover the bottom of the pan... then drain well before making the casserole.

I hope you enjoy!

Phyllis