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Baptism by the Holy Spirit...meaning the Spirit indwells the new believer and begins directing him/her in the wisdom and knowledge of the Lord (sanctification).

Baptism by water is an outward sign to other believers that you have been baptized by the Spirit and He now dwells in you.

http://utmost.org/classic/i-indeed-but-he-classic/

I Indeed… But He

I indeed baptize you with water . . . but He shall baptize you with the Holy Ghost and fire. — Matthew 3:11

Have I ever come to a place in my experience where I can say – “I indeed – but He”? Until that moment does come, I will never know what the baptism of the Holy Ghost means. I indeed am at an end, I cannot do a thing: but He begins just there – He does the things no one else can ever do. Am I prepared for His coming? Jesus cannot come as long as there is anything in the way either of goodness or badness. When He comes am I prepared for Him to drag into the light every wrong thing I have done? It is just there that He comes. Wherever I know I am unclean, He will put His feet; wherever I think I am clean, He will withdraw them.

Repentance does not bring a sense of sin, but a sense of unutterable unworthiness. When I repent, I realize that I am utterly helpless; I know all through me that I am not worthy even to bear His shoes. Have I repented like that? Or is there a lingering suggestion of standing up for myself? The reason God cannot come into my life is because I am not through into repentance.

“He shall baptize you with the Holy Ghost and fire.” John does not speak of the baptism of the Holy Ghost as an experience, but as a work performed by Jesus Christ. “He shall baptize you.” The only conscious experience those who are baptized with the Holy Ghost ever have is a sense of absolute unworthiness.

I indeed was this and that; but He came, and a marvellous thing happened. Get to the margin where He does everything.

http://utmost.org/sanctification-1/

Sanctification

This is the will of God, your sanctification. . . —1 Thessalonians 4:3

The Death Side. In sanctification God has to deal with us on the death side as well as on the life side. Sanctification requires our coming to the place of death, but many of us spend so much time there that we become morbid. There is always a tremendous battle before sanctification is realized— something within us pushing with resentment against the demands of Christ. When the Holy Spirit begins to show us what sanctification means, the struggle starts immediately. Jesus said, “If anyone comes to Me and does not hate . . . his own life . . . he cannot be My disciple” (Luke 14:26).

In the process of sanctification, the Spirit of God will strip me down until there is nothing left but myself, and that is the place of death. Am I willing to be myself and nothing more? Am I willing to have no friends, no father, no brother, and no self-interest— simply to be ready for death? That is the condition required for sanctification. No wonder Jesus said, “I did not come to bring peace but a sword” (Matthew 10:34). This is where the battle comes, and where so many of us falter. We refuse to be identified with the death of Jesus Christ on this point. We say, “But this is so strict. Surely He does not require that of me.” Our Lord is strict, and He does require that of us.

Am I willing to reduce myself down to simply “me”? Am I determined enough to strip myself of all that my friends think of me, and all that I think of myself? Am I willing and determined to hand over my simple naked self to God? Once I am, He will immediately sanctify me completely, and my life will be free from being determined and persistent toward anything except God (see 1 Thessalonians 5:23-24).

When I pray, “Lord, show me what sanctification means for me,” He will show me. It means being made one with Jesus. Sanctification is not something Jesus puts in me— it is Himself in me (see 1 Corinthians 1:30).