Phoebe is Holden's only real friend in the novel. She is his only confidant and, in Holden's view, the only person that understands him. Importantly, she represents one of the few positive ideas that Holden expresses in the novel.
In her youth, Phoebe still possesses an innocence that Holden prizes.
Phoebe represents the innocence and honesty of childhood, which is all Holden truly respects...
It is from this innocence and purity that Holden feels he is being forcefully removed. As he gets older and his bitterness grows, he longs for an escape either back into childhood or off into the woods. He craves a return to innocence and Phoebe acts as his sole anchor to this quality in the world.
Holden's other touchstone for innocence is his dead brother Allie. Where Phoebe represents a real, physical embodiment of innocence and honesty, Allie represents an idealized form of these traits. He becomes part of a fantasy world to which Holden occasionally escapes.
Through much of the novel, Holden despairs of finding a way to be at peace with the world. It is all too rotten for him. Only Phoebe has the potential to help heal him, as it were, by showing him that innocence still exists.
This is the case at the end of the novel, when Phoebe rides the carousel and Holden looks on, feeling finally connected to the quality that he desperately seeks.
Watching his sister Phoebe riding a carousel, he states: "I was damn near bawling, I felt so damn happy, if you want to know the truth."