Hydrolyzed will most of the time refer to proteins. Proteins are made up of amino acids that are linked together by peptide bonds. The peptide bond is a linkage between an amine of one amino acid with the carboxylic acid of another amino acid. When you link two animo acids together, you produce a water molecule (making peptide bonds is a dehydration process). To you break (lyze) that bond, you need to add a molecule of water (hydro)... hence, hydrolysis. Here's an amide (aka peptide) bond being hydrolyzed:

It's not just proteins though that can be hydrolyzed. Carbohydrate polymers (polysaccharides) are individual sugars linked in a dehydrative manner. To break down a polymer, you must also hydrolyze bonds linking individual sugar units. In the case of starch, you have a polymer of glucose, that hydrolyzes to individual glucose molecules.

Triglycerides are esters of fatty acids with glycerol. Again, you can hydrolyze these ester bonds, ultimately producing glycerol and free fatty acids.

In essence, hydroylysis is digestion. Our bodies do it naturally, via stomach acids and enzymes. It can also be done to produce processed foods. MSG, high fructose corn syrup... both are products of hydrolysis. Not to say that all products of hydrolysis are bad though. Our bodies do release MSG during digestion (in larger quantities than folks would ever get fro a Chinese buffet) and we liberate all sorts of sugar when we digest starches.

Regarding a protein that is hydrolyzed, it means broken down into smaller amino acids from a long chain of them. I suppose it could be good or bad in a food, which food do you see that label in?

Wow. Its like I think I should know this but.... kinda don't or do I?

Based on just the word itself I think that water is used to separate, or a water molecule is added. I know Lysis means to separate. Hydro means water.

OK I have my answer - I do not know. lol

Hydrolized is another word for MSG. Hydrolized yeast extract, hydrolized vegetable protein. It's all MSG. http://en.wikipedia.org/wiki/Monosodium_glutamate

J. Stanton wrote an excellent piece on hydrolyzed vegetable proteins and why they are so prevalent in processed food.

http://www.gnolls.org/3089/what-are-hydrolyzed-soy-protein-and-hydrolyzed-wheat-protein-and-why-are-they-in-everything/

Summary of article: When you extract the oils from corn, soy, etc, you are left with mostly vegetable protein. Hydrolysis (i.e., basically chemical digestion on an industrial scale) is then used to break down the proteins into amino acids such as glutamic acid, known as glutamate in its anionic form. Free glutamate is the molecule that plugs into the taste receptor we call “umami”.

"Conclusion

*"Hydrolyzed vegetable protein" is a flavor enhancer…

*…because it stimulates our umami taste receptors, just like soy sauce, Parmesan cheese, or MSG.

*However, it’s much cheaper than real food, because the USA heavily subsidizes the production of corn, soy, and wheat…

*…and, in the case of soy and corn, it’s made from a byproduct of soy and corn oil manufacturing that would otherwise be fed to cattle."