Holly's grandfather and grandmother are actually not related to her at all, but rather the Tochikan village elders who takes her in after her father leaves. They help hide her and Suezo during the invasion by Naga, but they lose their lives in the process.
Holly's grandfather knows that Holly has the magical gift passed down from their ancestors to work the Magic Stone, but tells her that she must keep it a secret for fear that Moo's spies will hear of it and come for her.